New Stage Theatre - Case Study
Julie VW
SMU
Non-Profit Financial Management AA661
Feb. 1, 2003
Memo
To: Board of Directors
New Stage Theater
Thank you for allowing me to work with New Stage Theatre. It is always a privilege to work with an organization so deeply committed to a mission.
After extensive review and consideration, I have come to the conclusion that New Stage Theater lacks the information needed to plan and manage a budget. In the attached report I advise the company to adopt accrual accounting practices and monitor expenses. This information will enable New Stage Theater to make full use of available resources and make informed estimates on next years budget. If I can ever be of additional service to you, please do not hesitate to contact me.
Thank you,
Julie VW
Case Study Consultant Extrodinaire
Ignorance is Not Bliss - The Problem
The management and board of the New Stage Theater do not have enough information to successfully draft and implement a yearly budget. The planning committee can't schedule a balanced season when they don't know what types of plays will deliver great (and not-so-great) revenues. Without knowing the estimated profit/loss of each show, the finance committee can only guess how much to budget for each production. Finally, without knowing how much they spent on a particular show, the company will never know if productions met financial expectations.
A is for Accounting
New Stage Theater should adopt accrual accounting practices immediately. Revenue needs to be recognized when a performance happens, and expenses matched to give an accurate picture of the costs associated with each show. The financial results of each production need to be communicated to the board and company on a regular basis so adjustments can be made during the season. Finally, this information needs to be used to plan and budget for future seasons.
Knowledge is Power
New Stage Theater assumes that great ticket sales automatically translate to great revenues. This may not be true. A production requiring an elaborate set, such as Midsummer Night's Dream, will cost more to produce and can loose money despite sold out performances. If New Stage Theater does not track expenses and revenues, the entire budget process achieves nothing and acts as an exercise in futility.
Many theaters use popular shows to fund the more challenging productions. Once accrual accounting practices are established, New Stage Theater will have information to decide if popular programing helps to fund the mission of presenting challenging productions. They may find that silly musicals take away from the mission of New Stage more than they expected.
Potential Pitfalls and Problems
Some people in the organization believe New Stage Theater does not value the type of information provided by sound accounting practices, and would prefer to spend time, energy, and money on artistic concerns. The company will be limited by how much they are willing to invest in updating accounting and budgeting systems. Money needs to be invested into updating financial departments and change the way things have always bee The recommendations presented do not constitute a quick fix, change is always difficult and results do not appear immediately.
