Museum TrendsWatch 2020: Financial Sustainability Introduction

Each year the American Alliance of Museums (AAM) releases a TrendsWatch report. The report announces five new trends, gathers research on each, and provides analysis. This year the report focuses in on one overarching topic: Financial Sustainability

Even during the best of times (economically speaking) museums operate near the razor’s edge of their finances, just one disaster away from extreme economic hardship. And here we are. We’re currently experiencing an economic disaster on top of an ongoing pandemic. While turning our attention to financial sustainability—and the long-term vision and implementation that entails—may seem poorly timed, our current predicament helps to underline just how critically important it is that we address the way museums bring in income. 

AAM acknowledges this unusual and challenging time with the following banner across their TrendWatch 2020 page:

Our sector is just beginning to assess the impact of closures, travel bans, cancellation of major events, and the implementation of social distancing. In the coming year, museums will struggle to contain the financial damage of the pandemic while supporting their staff and their communities as best they can. We hope that TrendsWatch will help museums lay the groundwork for the long-term path to recovery that lies ahead.

Innovation Toward a More Robust Financial Future

The coronavirus pandemic has highlighted the museum industry’s precarious financial position and, assuming the industry survives the initial fallout, we must address the weaknesses in our income streams and innovate toward a more robust financial future. In order to make effective decisions about our finances we must first understand where our income comes from. The TrendsWatch report breaks museum income into four types: earned income, charitable income, government funding, and financial capital; with a fifth section titled Fostering Financial Sustainability at Your Museum. In subsequent posts I’ll cover each with a summary of the topic, review challenges and opportunities as presented by AAM, and offer my recommendations.

An Introduction to the Problem

Before we dive into the specific income streams I want to take a moment to highlight some of the broader analysis AAM shares in its introduction section, as it helps to illustrate the financial circumstances many museums are in. There are four main income streams for any given type of museums (and as defined by the American system of accounting and taxation): earned revenue, charitable giving, government funding, and capital. According to AAM’s 2017 Museum Board Leadership survey most museums have the following financial makeup: approximately 33% earned revenue, 33% charitable giving, 19% government funded, and 11% investment (AAM clarifies that the percentages won’t total to 100 due to rounding). Traditionally, we would’ve reviewed this breakdown of income as balanced and wise; however, with the 2008 recession we learned that there are certain economic events that can damage all income streams, not just one. We are experiencing such an event now with the coronavirus pandemic and subsequent closures of non-essential public places.

Be Careful with Where You Trim Costs

The introduction also includes a note on expenditures and how museums have traditionally cut costs. AAM observes that when a financial shortfall occurs museums hyper-focus on trimming costs as opposed to addressing how they can bring in more income. What is meant as a short-term strategy unfortunately becomes a long-term tool and museums run the risk of starving themselves financially because they simply don’t have enough funds to operate. Trimming costs won’t (on it its own) lead to financial health, and instead museums must work toward bringing in more income. An AAM survey conducted for three years after the 2008 recession found museums maintained or even increased their programming, but implemented hiring freezes, stagnated staff salaries, and relied more heavily on volunteers to address their financial shortcomings. AAM goes on to assert, “A Museum’s staff is an essential core asset, as valuable as its building and collections.” And goes on to state that expecting a smaller staff to carry out the same (or increased) levels of programming leads to future costs related to staff burnout, turn over, and loss of productivity. AAM concludes this section stating:

In times of financial stress, an organization should double down on the investment it makes in employees. They are the foundation of a museum’s performance, and their knowledge, creativity, and commitment may be the wellspring of your [museum’s] financial recovery.

Conclusion

This is a challenging time of which we cannot accurately anticipate an end. There are immediate resources available to museums to help navigate the current crises via the National Endowment for the Humanities, the National Endowment for the Arts, and the Institute of Museum and Library Services. In addition, there are avenues through small business loans (turned to grants in eligible scenarios) for nonprofit organizations who qualify as “small”. And eventually, the museum will need to turn its attention to the long-term. What does economic recovery look like? What changes need to be made to our income streams and how we rely on them? What innovations can we make to generate revenue and become more financially resilient? We’ll explore these questions during each TrendsWatch post on: earned income, charitable income, financial capital, and government funding; with a fifth post to cover AAM’s Fostering Financial Sustainability at Your Museum section.

To read last year’s TrendsWatch coverage please see: Museum TrendsWatch 2019: Homelessness and Housing Insecurity, Museum TrendsWatch 2019: Self-Care, Museum TrendsWatch 2019: Blockchain, Museum TrendsWatch 2019: Decolonization, and Museum TrendsWatch 2019: Truth, Trust, and Fake News.