Question to answer:

From a Financial Management Perspective what are the next steps:

How can the situation be resolved?

What challenges are to be expected?

What went wrong with previous budgets, why were they approved?

Could the organization keep going 2 more yrs?

"I am experiencing the first crisis of my presidency," she mused, "and my term of office does not begin for another month." Janet Dobbs was Vice President for Administration and President- elect of the Greater Euclid Little Theater (GELT), a tax-exempt organization under section 501 [cl3] of the Internal Revenue Code. Despite stable and increasing income, GELT had, in Dobbs's view, a substantial budget problem. It was standard practice to ignore bills until they were at least 60 days past due. For the last year, Dobbs had met several times each month with the outgoing GELT President and Treasurer to decide which bills would be paid. She had decided the first priority of her presidency would be to put GELT's financial affairs in order. To her dismay, the Board of Directors had rejected the budget proposal she had presented the previous week by a vote of 8 to 7.(An additional three members had been absent.) Instead of unifying the Board, her "reform" budget proposal had polarized it 27 In its sixteen years of existence since 1986, GELT had evolved and grown. For the first six years it was a small group of adults staging performances for young children. The mission changed in the seventh year, when Cathy Cole became the first Artistic Director. Under Cole, the cast of performers started to include children. Some plays had only children as actors. After three years as Artistic Director, Cole moved out of state Rather than seek a new volunteer, the Board of Directors made the Artistic Director job a half time, paid position and hired Andy Spaulding in 1995. Spaulding was in his mid-40s and had recently returned home to Euclid after a professional acting career of more than 20 years, in Broadway plays and national touring companies. With Spaulding's leadership, the current GELT mission was adopted: to provide professional quality theater at an affordable price for the families of the greater Euclid area. Within a year, the little theater was no longer little. Everything was big: casts, production quality, audiences, income, and costs Spaulding's third season, 1997, had been a spectacular success. The six-show season included "The Sound of Music," "Camelot," "Fiddler on the Roof," and "Annie." Many performances were sold out, and actual revenue $75,500 - exceeded budgeted revenue by more than $7,000 The Board voted Spaulding a large salary increase and a bonus. To meet growing public demand they leased a larger space that would nearly double audience capacity Dobbs had joined the GELT Board in 2000. As did the other Board members, she supported Spaulding's vision for the organization. He was an artistic genius and a tireless worker. He had little interest or skill, however, in money matters. As President David Price put it, "His approach to budgeting employs addition but not subtraction. If his budget for production expenses for a show is $1,000 and he hears about a $500 donation to GELT, he thinks that $1,500 is available." Dobbs agreed with Price that Spaulding was partly responsible for the GELT debt. She knew she would have to curb his tendency to authorize expenditures in the absence of revenues. Treasurer Nicky Counts warned Dobbs that Spaulding seemed to care very little about helping to raise revenues. Counts had been asking Spaulding since 1998 to choose plays that would draw large audiences. He had resisted, saying, "It's our mission to raise the artistic awareness of the community, not to concentrate on plays they are familiar with." According to Counts, Spaulding had chosen to reduce the amount of money he received from GELT. "Prior to 2001, his Artistic Director salary had been supplemented with tuition paid by students taking classes from him at the theater," she explained, "Almost all tuition income went directly to Spaulding - a supplement to his Artistic Director salary of more than 20 percent. Spaulding discontinued the classes for 2001 and says he does not want to teach them in the future." Dobbs, Price, and Counts agreed that Spaulding didn't seem to understand that GELT could not meet his request for a larger salary if he resisted efforts to increase revenues. Dobbs doubted that she could convince Spaulding that realistic budgeting was necessary for GELT. She thought she could convince the Board of Directors. She persuaded the Budget Committee, which she chaired, to make four important changes in the proposed budget for 2002 that would highlight the budget problems and offer solutions First, the proposed budget included realistic revenue and expenditure estimates (Table 1). approximately $15,000 too high in 2001. Since 1998, estimates had been consistently too high Second, the proposed budget included information about budgeted and actual revenues and expenditures for the previous six years (Table 2). Dobbs wanted to document how unrealistic projections had become. Third, the proposed budget included a statement of end of year balances for the previous six years (Table 3). Dobbs wanted the Board to recognize that GELT had debt that would not be eliminated by balancing the 2002 budget Fourth, the proposed budget included an "expenditure" to reduce debt (Table 1). Dobbs wanted to replace GELT debt with a surplus during her two-year term as president Dobbs was surprised that a majority of Board members voted against her proposals She was shocked at the criticisms raised prior to the vote. Spaulding complained that the proposed budget reduced expenditures. Dobbs explained that, while the 2002 budget had lower estimated revenue than the 2001 budget, proposed expenditures for 2002 were higher than actual expenditures in 2001. Spaulding and the negative Board members insisted on comparing 2001 and 2002 proposed expenditures. Table 1 Current and Proposed Budgets Proposed Budgeted Item Actual 2001 2001 2002 REVENUES $33,100 $36,000 $32,400 Ticket sales $6,480 Concessions $8,500 $7,000 $6,750 $22,000 $12,000 $6,000 $0 Tuition fees $0 $29,000 $6,000 $2,900 Donations $30,500 Corporate underwriters $8,000 Gala ticket, silent auction revenue $3,000 $50 $20 $0 Interest $1,700 Participation fees $1,500 $1,500 $93,000 $78,300 $83,100 TOTAL REVENUES EXPENDITURES $26,000 $26,000 Artistic Director $26,000 $14,000 $14,000 $7,400 $3,800 $3,500 $14,000 Rent $6,500 $3,000 $8,000 $4,000 Utilities Advertising $1,200 $4,000 Facilities/maintenance $1,200 $1,400 $1,600 Supplies Royalty fees Production expenses $10,200 $12,000 $8,600 $7,000 $9,000 $8,000 Office $850 $300 $300 $4,000 $3,000 $3,500 $2,000 $1,600 Concessions $3,500 Fundraising Capital purchases Bank/charge expenses $2,100 $4,000 $0 $300 $100 $100 Class instruction payment to Artistic Director $5,500 $1,250 $0 $0 Class expenses $0 $0 Reduce debt $0 $0 $2,500 TOTAL EXPENDITURES $93,000 $79,200 $83,100 "I am experiencing the first crisis of my presidency," she mused, "and my term of office does not begin for another month." Janet Dobbs was Vice President for Administration and President- elect of the Greater Euclid Little Theater (GELT), a tax-exempt organization under section 501 [cl3] of the Internal Revenue Code. Despite stable and increasing income, GELT had, in Dobbs's view, a substantial budget problem. It was standard practice to ignore bills until they were at least 60 days past due. For the last year, Dobbs had met several times each month with the outgoing GELT President and Treasurer to decide which bills would be paid. She had decided the first priority of her presidency would be to put GELT's financial affairs in order. To her dismay, the Board of Directors had rejected the budget proposal she had presented the previous week by a vote of 8 to 7.(An additional three members had been absent.) Instead of unifying the Board, her "reform" budget proposal had polarized it 27 In its sixteen years of existence since 1986, GELT had evolved and grown. For the first six years it was a small group of adults staging performances for young children. The mission changed in the seventh year, when Cathy Cole became the first Artistic Director. Under Cole, the cast of performers started to include children. Some plays had only children as actors. After three years as Artistic Director, Cole moved out of state Rather than seek a new volunteer, the Board of Directors made the Artistic Director job a half time, paid position and hired Andy Spaulding in 1995. Spaulding was in his mid-40s and had recently returned home to Euclid after a professional acting career of more than 20 years, in Broadway plays and national touring companies. With Spaulding's leadership, the current GELT mission was adopted: to provide professional quality theater at an affordable price for the families of the greater Euclid area. Within a year, the little theater was no longer little. Everything was big: casts, production quality, audiences, income, and costs Spaulding's third season, 1997, had been a spectacular success. The six-show season included "The Sound of Music," "Camelot," "Fiddler on the Roof," and "Annie." Many performances were sold out, and actual revenue $75,500 - exceeded budgeted revenue by more than $7,000 The Board voted Spaulding a large salary increase and a bonus. To meet growing public demand they leased a larger space that would nearly double audience capacity Dobbs had joined the GELT Board in 2000. As did the other Board members, she supported Spaulding's vision for the organization. He was an artistic genius and a tireless worker. He had little interest or skill, however, in money matters. As President David Price put it, "His approach to budgeting employs addition but not subtraction. If his budget for production expenses for a show is $1,000 and he hears about a $500 donation to GELT, he thinks that $1,500 is available." Dobbs agreed with Price that Spaulding was partly responsible for the GELT debt. She knew she would have to curb his tendency to authorize expenditures in the absence of revenues. Treasurer Nicky Counts warned Dobbs that Spaulding seemed to care very little about helping to raise revenues. Counts had been asking Spaulding since 1998 to choose plays that would draw large audiences. He had resisted, saying, "It's our mission to raise the artistic awareness of the community, not to concentrate on plays they are familiar with." According to Counts, Spaulding had chosen to reduce the amount of money he received from GELT. "Prior to 2001, his Artistic Director salary had been supplemented with tuition paid by students taking classes from him at the theater," she explained, "Almost all tuition income went directly to Spaulding - a supplement to his Artistic Director salary of more than 20 percent. Spaulding discontinued the classes for 2001 and says he does not want to teach them in the future." Dobbs, Price, and Counts agreed that Spaulding didn't seem to understand that GELT could not meet his request for a larger salary if he resisted efforts to increase revenues. Dobbs doubted that she could convince Spaulding that realistic budgeting was necessary for GELT. She thought she could convince the Board of Directors. She persuaded the Budget Committee, which she chaired, to make four important changes in the proposed budget for 2002 that would highlight the budget problems and offer solutions First, the proposed budget included realistic revenue and expenditure estimates (Table 1). approximately $15,000 too high in 2001. Since 1998, estimates had been consistently too high Second, the proposed budget included information about budgeted and actual revenues and expenditures for the previous six years (Table 2). Dobbs wanted to document how unrealistic projections had become. Third, the proposed budget included a statement of end of year balances for the previous six years (Table 3). Dobbs wanted the Board to recognize that GELT had debt that would not be eliminated by balancing the 2002 budget Fourth, the proposed budget included an "expenditure" to reduce debt (Table 1). Dobbs wanted to replace GELT debt with a surplus during her two-year term as president Dobbs was surprised that a majority of Board members voted against her proposals She was shocked at the criticisms raised prior to the vote. Spaulding complained that the proposed budget reduced expenditures. Dobbs explained that, while the 2002 budget had lower estimated revenue than the 2001 budget, proposed expenditures for 2002 were higher than actual expenditures in 2001. Spaulding and the negative Board members insisted on comparing 2001 and 2002 proposed expenditures. Table 1 Current and Proposed Budgets Proposed Budgeted Item Actual 2001 2001 2002 REVENUES $33,100 $36,000 $32,400 Ticket sales $6,480 Concessions $8,500 $7,000 $6,750 $22,000 $12,000 $6,000 $0 Tuition fees $0 $29,000 $6,000 $2,900 Donations $30,500 Corporate underwriters $8,000 Gala ticket, silent auction revenue $3,000 $50 $20 $0 Interest $1,700 Participation fees $1,500 $1,500 $93,000 $78,300 $83,100 TOTAL REVENUES EXPENDITURES $26,000 $26,000 Artistic Director $26,000 $14,000 $14,000 $7,400 $3,800 $3,500 $14,000 Rent $6,500 $3,000 $8,000 $4,000 Utilities Advertising $1,200 $4,000 Facilities/maintenance $1,200 $1,400 $1,600 Supplies Royalty fees Production expenses $10,200 $12,000 $8,600 $7,000 $9,000 $8,000 Office $850 $300 $300 $4,000 $3,000 $3,500 $2,000 $1,600 Concessions $3,500 Fundraising Capital purchases Bank/charge expenses $2,100 $4,000 $0 $300 $100 $100 Class instruction payment to Artistic Director $5,500 $1,250 $0 $0 Class expenses $0 $0 Reduce debt $0 $0 $2,500 TOTAL EXPENDITURES $93,000 $79,200 $83,100