I recently had the pleasure awarding seed grants for student arts ventures through our p.a.v.e. program in arts entrepreneurship. In this latest round, we reviewed thirteen letters of intent and seven full proposals. The proposals were very diverse give you a rundown in my next posting) but had one thing in common: insufficient understanding of how to conceptualize or present a budget. We don’t ask for a detailed business plan as traditional venture incubators do, but something simpler: a project budget for the award period, usually the current and following fiscal year. Needless to say, we’re mentoring our p.a.v.e. students through that process, but thought I’d share a few budgeting basics here.
A BUDGET IS A PLAN.
A budget is only a plan for how the venture is going to spend the money it raises and earns. So, in the simplest terms, the budget plan is a list of all the sources of revenue and a list of all of the anticipated expenses. The accounting that happens afterward is an opportunity to assess how well the plan worked in achieving the goals of the venture or project.
REVENUE SHOULD EXCEED EXPENSES.
My quick lesson on financial management is equally simple: the total revenues must meet or exceed the total expenses. THIS IS NOT ROCKET SCIENCE.
It will probably come as no surprise to hear that sometimes student arts entrepreneurs don’t include everything they should on their planning budgets. What is surprising is that the most common mistake on the revenue side is the exclusion of earned income from the budget. That’s right, they don’t realize they can count the money they will generate from ticket sales or DVD sales, or tuition to the community arts workshop they’re starting in their budget. These students are smart and have big ideas, but they’re not yet fully thinking entrepreneurially. My guess is that leaving earned income off the budget plan is a problem of mindset. These students don’t expect to make a profit right off the blocks (if at all) so why include earned income.
REVENUE AND PROFIT ARE TWO DIFFERENT THINGS.
Revenue is all the money that comes into the project. Profit (or deficit) is the difference between the revenue and the expenses. Most of our student arts entrepreneurs aren’t out to make a profit out of the box, but it is our hope and theirs that they’ll make the money needed to sustain their venture.
BUDGET PLANNING DOES NOT REQUIRE HIGHER LEVEL MATH
Some arts entrepreneurs are intimidated by the math needed to create a budget. There really isn’t anything more than basic arithmetic needed â€“ primarily addition and subtraction. Multiplication may be needed if sales projections are part of the plan, but that only involves multiplying the unit price (e.g. ticket price) by the number of units projected to be sold.
Sometimes, student arts entrepreneurs leave key items out of their budget or grossly underestimate the cost of something important — like marketing materials. It just takes a small amount of research to find out what it would cost to print and mail a thousand flyers, buy a domain name, or the like.
With a little research, some basic arithmetic, and the necessary foresight, putting together a budget can be pretty simple â€“ especially when we’re only talking about four figure numbers. Multiple funding streams will make things more complicated, but by the time there are multiple funding sources to keep track of, the venture may want to consider a professional business manager or accountant. Think ahead, face your fears, and get started!