VPAB13 EXAM

Art Finance Study Notes

✅Week 1: 

Financial literacy = being able to understand and use financial information. 

  • Read financial statements 

  • Understand budgets 

  • Make informed financial decisions 

  • Communicate money issues clearly in an arts context 


Types of Arts Businesses:

  1. For-Profit

  • Goal: earn profit for owners/shareholders

  • Revenue > expenses = profit

  • Examples: film studios, commercial galleries, music labels

  1. Not-for-Profit (NPO)

  • Mission-driven (not profit-driven)

  • Can earn revenue but must reinvest it into programs

  • Often depends on grants, donations, fundraising

  • Example, theatre companies, dance companies, art festivals

  1. Charities

  • A special type of NPO with extra rules

  • Must be registered with the Canada Revenue Agency

  • Can issue tax receipts for donations

  • Must follow stricter financial & reporting requirements

  • Key Difference:

    • NPO: mission-focused, no tax receipts

    • Charity: mission-focused + legally allowed to give tax receipts


Finance Roles

  • Bookkeeper - records daily transactions (money in/out)

  • Accountant - prepares/analyzes statements; ensures accuracy and compliance

  • Board of Directors- oversees the organization; approves budgets and major financial decisions

  • Finance Committee - a small group from the Board that reviews financial reports more closely

  • Treasurer - board member responsible for monitoring finances and reporting to the Board

  • Lawyer - handles legal and contractual financial matters (e.g., agreements, liability)

  • CFO (Chief Financial Officer) - senior leader responsible for all financial strategy, planning, and risk

  • CEO (Chief Executive Officer) - top leader; oversees the entire organization, including financial health

  • Executive Director (common in NPOs) - runs the organization; manages budgets, staff, and operations

  • Box Office - handles ticket sales and revenue from events

  • Line Producer - manages day-to-day budget for a production

  • Producer - oversees entire project finances; secures funding and allocates resources Production Manager - controls production logistics and ensures the project stays on budget


Ethics in FInance

  • Be honest with numbers

  • Keep accurate records

  • Follow legal rules (especially for NPOs/charities)

  • Handle money responsibly


Week 2:

How We Talk About Finance

  • Finance (noun): managing money for governments, businesses, individuals 

  • Finance (verb): providing money/funding


Key Equation -> INCOME STATEMENT (STATEMENT OF EARNINGS/OPERATIONS)

  1. Revenue - Expenses = Profit/Surplus (or Loss) 

  • Revenue = money earned (top line, sales, gross income)

  1. Expenses = costs (wages, rent, supplies, etc.)

  • 4 Types: COGS (cost of goods sold), operating expenses, financial expenses, extraordinary expenses

  1. Profit = financial gain (or loss if negative)


-> 3 Types of Profit:

  1. Gross Profit = Revenue - COGS

  • Profit before operating cost 

  1. Operating Profit = Gross Profit - Operating Expenses

  • Operating expenses = rent, wages, marketing

  • Profit from normal operations

  1. Net Profit = Operating Profit - all remaining expenses

  • Includes: financial costs, taxes, extraordinary items

  • Final profit (bottom line)


Accounting Equation -> BALANCE SHEET

  1. Assets = Liabilities + Owner’s Equity

Or 

  1. Assets - Liabilities = Equity

  • Assets = what you own (ex. House, cars)

  • Liabilities = what you owe (ex. Loans, rent)

  • Equity = value that belongs to the owners


Readings:


Week 3 + Week 4:

What is a Budget?

  • A financial plan estimating revenue and expenses for a specific time period


Who Does the Budget?

  • CFO

  • Executive Director

  • Treasurer

  • Department heads

  • (Key idea: many hands, not one person)


When Do We Budget?

  • Depends on the organization

  • Usually yearly, based on business cycle

  • For a student: beginning of semester or before major costs


Why Budget?

  • To get funding (e.g., grants)

  • Plan spending

  • Meet goals/mission

  • Avoid overspending

  • Communicate plan to team

  • Track progress during the year


How Do We Start a Budget?

  • Begin with goals/mission

  • Then estimate revenue

  • Then estimate expenses

  • (The purpose isn’t always to maximize revenue, sometimes mission matters more)


Readings:


Week 4:

Readings:


Week 5:

Accounting/Financial Cycles

  • Financial reports are just a story

  • Monthly reports are a newsletter

  • Annual reports are a yearbook​​​​


The Accounting Cycle

  1. Year End

  • Different organizations choose different year ends based on their cycle: 

  • Festivals = after festival season

  • Theatres = after performance season

  • TV productions = after production ends

  • Personal = Dec. 31

  1. Audit Trail

  • A path of documents that lets someone trace every financial transaction (“Breadcrumbs” from start to end)

  1. Seven Steps in the Accounting Cycle

  • Receive documents

  • Initial processing

  • Write journals

  • Bank reconciliation

  • Write ledger

  • Trial balance

  • Issue financial statements 



Readings:


Week 6:

What Are Interim Reports?

  • Reports created during the year to show financial status


Types of Interim Reports

  • Expense reports

  • Cost reports

  • Cash flow

  • Budget summaries

  • Quarterly statements

  • Interim financial statements


Who Prepares Them?

  • Bookkeepers 

  • Accountants

  • Managers

  • Board/Finance Committee


Who See Them?

  • Board

  • Investors

  • Leadership

  • Public (in some organizations)


Why Do Them?

  • Transparency

  • Tracking progress

  • Helping make decisions

  • Preventing problems early


When Do Them?

  • Monthly, quarterly, up to the minute


Characteristics of Good Interim Reporting

  • TImely

  • Accurate

  • Clear information + notes


Expense Reports

  • Filed by employee, contractor

  • Signed off on by authorized signatory

  • Processed by bookkeeper


Cost Reports

  • Prepared by Bookkeeper/Accountant

  • Signed off on by authorized signatory


Fixed Expenses

  • Costs that do NOT change with production level

  • Paid regularly

  • Ex: rent, salaries, insurance, utilities (usually)


Variable Expenses

  • Costs that change depending on activity level

  • Increase or decrease based on output

  • Ex: materials, costumes, printing, hourly labour


Readings:


Week 7:

Cash Flow = money moving in and out over time 

  • Cash inflow: ticket sales, grants, tax credits, investments

  • Cash outflow: salaries, rent, supplies, payments

WHY?

  • When will I need cash?

  • Will I have enough?

  • Do I need credit/loans?


Cash Flow Components

  • Budget

  • Drawdowns (when payments arrive)

  • Schedule (timing)


Readings:


Week 8:

Economics of the Arts

  • Artists often underpaid due to nonprofit structure & high production costs


Nonprofits

  • Mission > money

  • Often near financial strain (Baumol & Bowen) 


For-Profits

  • Costs rise faster than revenue; hard to cut costs in arts 


Strategy

  • Red Ocean: compete in crowded market (Walmart, Broadway)

  • Blue Ocean: create new market space (Netflix, Cirque du Soleil)


Cost of Living vs Wages

  • Art workers often face low wages relative to living costs


Readings:


Week 9:

Accounting Standards

-> Rules for financial reporting

  • GAAP: Generally Accepted Accounting Principles (US but also a catchall for all the Accounting standards)

  • IFRS: International Financial Reporting Standards (Canada)

  • ASPE: Accounting Standards for Private Enterprises (Canada)

  • ASNPO: Accounting Standards for Non-for-Profit Organizations (Canada)


Why Statements Matter

  • Show financial health, organization size, and compliance


Readings:


***Week 10:

Ratios = Compare Two Numbers

  • Used to evaluate performance


Effectiveness & Efficiency

  • Effectiveness: compares goals to achievements

  • Efficiency: compares the relationship of inputs to outputs

  • Any changes to effectiveness & efficiency affects the other


For-Profit Ratios

  • Liquidity: ability to pay bills (Current Ratio = current assets/ current liabilities)

  • Profitability: how much profit (Return on Assets (ROA), ROI, margins)

    • Ex: Netflix 2016

  • Debt: how much debt is safe

  • Efficiency: using assets well

  • Market: investor opinion (EPS, P/E)


Nonprofits Ratio

  • Profitability ratios DON'T work

  • DO WORK:

  • Liquidity (cash)

  • Solvency (debt)

  • Effectiveness (goals vs results)

  • Efficiency (input vs output)


Effectiveness Examples

  • Budgeted ticket sales vs actual, social media growth vs goal


Readings:


Week 11:

CADAC

  • National system for collecting standardized financial + statistical data for arts orgs. 


Why CADAC?

  • Benefits for Arts Organizations

  • One platform for all funders

  • Consistent forms

  • Helps transparency

  • Gives comparative reports


CRA (Taxes)

  • Progressive tax system (higher income = higher rate)

  • Credits/deductions: tuition, medical, child care, donations

  • Artists can deduct: supplies, studio, equipment, ads, insurance (Accountant comes in handy)

Readings:


Week 12:

Measuring Success

  • For-profit: profit $$

  • Nonprofit: mission success, effectiveness, efficiency


KPIs (Key Performance Indicators)

  • Custom metrics showing if goals are being met


KPI Categories Examples

  • Attendance

  • Access 

  • Revenue

  • Diversity

  • Social impact

  • Quality

  • Education 

  • Innovation


Ratio Review (For-Profit)

  • Liquidity, profitability, debt, efficiency, market


Nonprofit Ratios

  • Effectiveness + efficiency > profit