2009 March « Theatrical Musings

So it’s budgeting time at the theatre and as Managing Director, I get to put together the budgets for the next season. Now, of course, my budgets aren’t set in stone the second I turn them in (if only….) and they often take a couple of months of give and take from various board of directors type people, but ultimately after this process we have a budget.

Sounds easy, right?

I Laugh at you.

There is nothing about this process that’s easy, but it’s so necessary, you have to get past the crap going into it and suck it up and do it. The budget is what your theatre SHOULD live and die by for the upcoming season. How are you going to know if your spending too much money? How do your producers know what their directors can spend? This is why it’s so vital to DO a budget.

I know, I know, we’re theatre people…we don’t do …..MATH. Guess what, open up Excel and suck it up. This is the single most important thing you can do to have a successful season. Here’s a couple of things I do when it comes to budgets

1. You can’t budget if you don’t know what your season is. Get on your Artistic Director and get them to pick your season. The earlier, the better as it gives you a lot of time to figure out what you may or may not need in terms of production costs. You can’t even get the first numbers down until you know what plays you are doing.

2. Do NOT ask directors what they need for cash Any director worth his salt is going to be thinking big and they will ask for big numbers. Your job is to take a look at the show and with your Artistic Director, determine what the needs of the show are and then you give the director and producer their budget. They don’t tell you, you tell them.

3. Make sure you have historical information You can’t just walk into each season and budget from scratch. How do you know what your trends are if you don’t have historical information? Run at least your P&L from the last season and if you can, the last two. Look at a show by show comparison. What shows did well, what didn’t…was it because they were a comedy, Drama, musical….what time of year was it? Do you know you have to work harder because people don’t come see your summer shows?

4.Do your revenue first Too many people think they have to get their expenses done first and then figure out what revenue they need to cover those expenses. Figure out your revenue first, then do your expenses. If you realistically budget your revenue based on historical information, then you’ll know what you can spend to not be in the red at the end of the season. If you aren’t hitting your revenue targets, you can adjust your expenses accordingly.

5. Use metrics that matter As you are looking at your numbers, there are elements that you need to look at to determine how you are doing financially. Too many theaters don’t look at what matters. For Example, if you have been budgeting using a metric like Paid % House (How many paid seats you have), you are putting yourself at a disadvantage. Or counting Comps as an expense. That too is wrong (Comps are 0 income revenue items and, in a sense, represent opportunity costs).

My advice is to use these metrics: Net Income (Revenue – Expenses), % Occupied (Total occupancy including comps), Average Ticket Price (including comps!), RevPAS (revenue per available seat; take your revenue and divide it by the total number of seats. This number will give you a good historic indication of where you have been. If this number is growing, you are making more money).

6. Do a budget for each month, the year, and each show A Profit and Loss Statement shows how much revenue and expenses you had for a certain period of time. If you subtract one from the other it shows your Net Income. A P&L is usually done for each month as the months are over. As you budget, you do the same exercise for each month….but you should also do one for each show. This way you know what each show should bring in to pay for itself and that revenue can go into the total monthly P&L. All of that feeds into your fiscal year P&L.

My way is not the only way to do budgeting, but it is the way that works for me. After you get your yearly budget done, you’ll be better equipped to have a financially successful season. I know that we are not usually math oriented folk, but the better your budgeting is, the better chance your have to survive to your next season.