Artists Have a Hard Time Balancing Arts and Numbers
[This post was first published in December 2015. The content remains remarkably fresh and relevant. It’s not a business if you don’t know your numbers. With the New Year just weeks away, it’s an excellent time to get a handle on the financial data that defines your business.]
Few of us are gifted with equally with left and right brain strengths and talents. It’s the equivalent of being entirely ambidextrous, which you know is very rare. The distribution for sure works that way with arts and numbers. So we devise ways to compensate instead or suffer the consequences.
The irrefutable facts are you cannot have success with an art career without money management. Despite how much you might like to delegate this task if you do without learning how arts and numbers work together, you are at risk. It is inadvisable to ignore your finances or trust them to others.
The problem is the topic is boring to right-brained artists. Thinking about finance doesn’t fire off excitement in your brain’s synapses. It is quite the opposite for most. That’s why this book, Arts & Numbers: A Financial Guide for Artists, Writers, Performers, and Other Members of the Creative Class, is so significant and valuable.
If You Want Success in Your Art Career, You Have to Know How to Manage Your Money
Elaine Grogran Luttrull has struck a near-perfect balance between arts and numbers in writing this book. She manages to take a slightly dry subject about money and accounting for it and makes it interesting.
She pulls off this ambidextrous effort amazingly well. So much so, you’ll find yourself pleasantly reading it to the end. Here is what one Amazon reviewer had to say:
This book is written in a way that is both easy to understand and relatable, so I didn’t lose interest which meant I kept reading and kept learning. The author seemed to really understand the artist’s mind and doesn’t make you feel guilty for not having a budget or being on top of your finances. At the same time she is encouraging and uplifting in a way that makes you feel empowered to set these better practices in motion.
Elaine Is a True Artists’ Advocate
Elaine Grogan Luttrull is a CPA. She is the founding owner of Minerva Financial Arts, a company devoted to improving financial literacy among artists and arts organizations through tax services, budgeting support, business planning, and education. She teaches at the Columbus College of Art and Design and the Ohio State University, and she previously served as the Director of Financial Analysis for The Juilliard School and in the Transaction Advisory Services practice of Ernst & Young in New York.
Read the Following Excerpt. It Is a Fine Example of How the Author Thinks and Presents Her Topic
You will find useful, practical advice in just these few words. If you’ve been practicing as an artist for any length of time, you probably have similar experiences as the artists mentioned below.
Sometimes you may be offered an opportunity that is fulfilling artistically or professionally but doesn’t come with any compensation. Sometimes you may be provided an opportunity that offers incredible experience or exposure but comes with less payment than you’d otherwise prefer. If the intangible benefits of either opportunity truly outweigh the financial cost to you (i.e., not getting paid), then go for it. All professionals have a responsibility—moral, ethical, social, and professional—to volunteer in their capacities, in their fields. Volunteering yields plenty of benefits. It is emotionally and mentally rewarding, contributes to an individual’s personal
All professionals have a responsibility—moral, ethical, social, and professional—to volunteer in their capacities, in their fields. Volunteering yields plenty of benefits. It is emotionally and mentally rewarding, contributes to an individual’s personal development (self-actualization), and helps forward a cause or an initiative. It also has trickle-‐down and trickle-‐across effects on the economy because the recipients of the volunteer services or goods benefit without incurring financial hardships. The benefits multiply without multiplying the costs. Artists are not exempt from these rewards. They, too, can gain the benefits associated with volunteering, perhaps by offering occasional classes or demonstrations to those who otherwise wouldn’t be able to attend an art class. Plus, such opportunities enhance professional fulfillment and expand the artist’s network and experience.
But unlike other professionals (e.g., attorneys, accountants, advisors), who view volunteering as the exception, not the norm, entrepreneurial artists often find themselves stuck in a spiral of volunteerism. Often, artists value the output (e.g., painting, performance, music composition, book) more than they appreciate their input of process, effort, and time. They tend to compromise their fees or income for the sake of the art (the end product). As a result, volunteering can become their norm rather than their exception, and the intangible benefits slowly diminish or expire. That’s when the otherwise definite idea of volunteering becomes (what I call) masochistic volunteering.
Example 1: The Art Donation
Consider a new artist’s opportunity to contribute a sculpture to a local show. The hosts offer exposure to a broad audience and the experience of participating in a juried show, but no compensation. The artist agrees to participate enthusiastically. A massage therapist who sees the artist’s work asks him to donate a piece to her office space. The office has no budget to purchase an artwork, but many clients visit the office space, and the exposure for the artist could be compelling. The artist agrees, somewhat reluctantly, glad that the show led to another project (even if it was unpaid).
A massage therapist who sees the artist’s work asks him to donate a piece to her office space. The office has no budget to purchase a piece, but many clients visit the office space, and the exposure for the artist could be compelling. The artist agrees, somewhat reluctantly, glad that the show led to another project (even if it was unpaid).
One client visited the office, learned the artist donated his sculpture and contacted the artist. He tells the artist about a contest that the newspaper he works for is hosting. There is no compensation for creating the work, but the artist would get a show and some great press in exchange for his contribution. The newspaper client thought the artist would be interested since he was willing to do pro bono work. The artist agrees to participate, very reluctantly.
A choreographer reads the great write-‐up about the artist in the paper and contacts him about creating a set piece for her next production. Her dance company is a nonprofit, so funds are limited, but she offers to pay for his supplies and reminds him about the great exposure he’ll receive among patrons of the show. The artist agrees, and starts to wonder (finally!) whether he can call himself a professional if he isn’t getting paid. Let’s look at a visual representation of his work.
Masochistic Volunteer Projects
Volunteering became the artist’s norm, and he found himself unable to break out of the volunteerism spiral. The intangible benefits diminished (did he really need more exposure?), but he kept volunteering. It became masochistic.
Why We Volunteer Masochistically
The psychological reasons behind this phenomenon are complicated. Perhaps artists are unwilling to walk away from an interesting project regardless of its parameters. Maybe they fear another project won’t be forthcoming, and they would rather be busy (even the unpaid type of busy) than idle. Maybe they subconsciously fear that society or the invisible hand of the economy won’t value their output as highly as they do, so they underprice their work to protect their egos. Perhaps they fear being labeled a “sellout” for attaching a price to their time and effort. The thought process, whatever it is, is not essential in the macro sense because entrepreneurs—artists and professionals alike—all have their different personal reasons for developing pricing structures. What does matter in the larger scheme of things is for entrepreneurs to build a strong sense of good deal/bad deal balance and the willingness to walk away, no matter what, when a deal sours. Making a distinction between good and bad deals and walking away from the bad deals are something those in the business world practice regularly. And so should artists.
Recall the discussion in Chapter 5 about sunk costs and walk-‐away prices. Sunk costs are unrecoverable, spent costs of a deal or an agreement. A walk-‐away price, meanwhile, is the absolute minimum compensation parties to a negotiation must attain to reach an agreement. To illustrate these concepts, let’s examine the consequences of Evelyn’s masochistic volunteering.
Cutting Your Losses
Part of Evelyn’s cash flow problem stems from an engagement she has with an emerging dance company. It all started well. The company hired her to choreograph an upcoming show and promised to pay her $5,000 in two installments—the first would be paid one month into the project (assuming she met the required milestones), and the second would be paid five months later, after the show premieres.
Evelyn was ecstatic, of course. She spent countless hours developing and directing several pieces, attending castings, collaborating with the performers, editing the accompanying music for each piece, holding rehearsals, and so on. When the first payment didn’t come after the end of the first month, she called the executive director, who assured her the check was in the mail. A few weeks later, it still was not in her hand, which prompted her to ask again and again. She heard variations of the same response: “It’s en route; we’re working on it.” Not wanting to be a bother, she continued working. Besides, she didn’t want to fall behind schedule on such an important project.
Evelyn’s Sunk Costs
Evelyn entered a seemingly benign agreement. After a point, assuming the nonpayment trend continues, she may find it necessary to cease work on the project. If she does end her work with the company, the time, and energy—not to mention the expense of showing up to work every day—she has invested are sunk costs (in accounting terms). She can’t get those back, no matter how long she sticks around hoping the dance company will eventually get around to paying her. Sunk costs aren’t always
Sunk costs aren’t always time-related, although arguably time is the best kind of sunk cost because by putting in time something creative does emerge (in her case, a piece of choreography), so the engagement isn’t a total loss. Assuming the contract she signed permits her to retain ownership of her work, the dance company would be in breach of contract if it uses the work without her permission. She, on the other hand, can draw on her work for future choreography projects.
When we think of the worst kind of sunk costs, we usually think of something monetary. Let’s say Evelyn wanted access to a mirrored room for use during rehearsals, so she booked a space for six months and paid in advance (cost: $3,000). If by the second month of her engagement she decides to walk away from the project, the money she has already spent on the studio rental shouldn’t affect her decision making. She may be tempted to say, “I can’t leave because I already spent $3,000 on the studio rental, and I need to get that back at least.” That money is gone, and continuing to hold up her end of a bad bargain won’t change the fact that she has spent $3,000 of her own money. Even if the company eventually pays her the agreed total amount of $5,000, her $3,000 is still gone. It’s a sunk cost, so it should have no bearing on her future decisions.
Evelyn’s Walk-Away Price
By negotiating the timing, amount, and conditions of her fee in advance and signing a contract, Evelyn already inherently practices the idea of a walk-away price. She knew what she was willing to be paid for her work, and she negotiated with the dance company to reach an acceptable amount (hopefully an amount higher than her walk-away price). If the tangible or intangible benefits she received in exchange for her work didn’t exceed her walk-away price, Evelyn wouldn’t have agreed to the project. A walk-away price is the absolute minimum amount one party to an agreement is willing to accept. The person would prefer to earn more than the walk-away price, but she’ll never take less.
It is reprinted with permission from Arts and Numbers by Elaine Grogan Luttrull, Agate B2, 2013.