Finance, it's Rock 'n' Roll...no honest
Music technology to help explain a little of the financial language around running an organisation?
I suspect many community musicians, myself included, can multi task and be good at a number of things. When I list them it tends to go like this. Hitting, strumming, programming, recording things…. yup pretty good at those, engaging people …yup.. enthusing them…. yup - tick, pretty good at that.. financial models and language around scalability of community music organisations errrrrrrr….. ahh.
I was recently having a conversation about finance in relation to Noise Solution. At points it was a little like those conversations in Snoopy when adults were talking but all Charlie Brown or his friends could hear was a noise that they couldn't or wouldn't understand. For those that have no idea who charlie brown is (either use google, that's what you do when you've not heard of something, or take the following as an example of what I heard).
"Blahh blah wha blahh.. Break even point …. whahh blah wha blahh.. Fixed costs… Blah blahh bla whah Variable costs….. bla bla blah bah.."
Now I understand that running an organisation requires that you understand the numbers or it's not going to survive so I was trying hard to really listen but all the financial language was sending the right side of my brain to sleep. Until I heard the words input and outputs. Aahhh I thought that sounds a bit like a mixing desk. That's much more interesting than dry financial talk. I wonder if I can build an analogy between what all this financial stuff actually means and have it relate it to how a mixing desk works… just so I can get it clearer in my own head. I think you can probably guess where this is going.
As an analogy this works,. kinda, well… if you view it with a bit of a squint and don't look to closely.
Q. What does a mixer need to work ?
A. Power... and that doesn't change.It's requirements are FIXED.
So these are our FIXED COSTS (in financial terms). For our organisation to run we need insurance, postage, phone's, fixed salaries, cloud storage, internet, electricity etc etc. These items are needed to make our mixer/organisation work and for all intents and purposes they stay the same month by month.
What else is going into our mixer?
Well this depends on what we choose to put into our channels. It depends what we're working with. It's Variable. Lets say that this week into our mixer/organisation we are going to put 4 channels of audio(or income) in. Lets have a project for youth offending on channel one, one for social services on channel 2, a mental health team referral on channel 3 and the local College on channel 4. The amount of projects/channels/income streams is Variable. But the important point is that the number of Channels can change and the costs associated with those (tutor wages, travel etc) is not fixed but changes depending on how many sessions you're running. The costs of running them constitute VARIABLE COSTS.
So far so good. Fixed costs = power whilst Variables = what changes month to month coming in and variable costs = those costs associated with fluctuating amounts of clients.
For this analogy to really work you have to imagine that our mixing desk is very special (or more likely given the equipment we get to work with, broken) and it only works when there is enough audio (clients) coming into the desk to justify the power requirements of the desk. So if you only had one channel of audio coming in (our VARIABLE COSTS) the power (or our FIXED COSTS) would take one look at it shrug it's shoulders and say I can't be bothered to power that, it's not worth my while - I don't get out of bed for less than three clients and that means no music. When you have those three clients and the input balances or matches the power requirements then you're at the magical 'BREAK EVEN POINT' That's when your organisation is earning enough coming in to cover or power whats going out. Obviously at this point what's bursting out of the PA fixed to your mixing desk is beautiful music :)
In simple terms you need as much money coming in as is going out and the costs to the organisation vary depending on how many clients you're providing services to.
Pretty obvious but you'd be very surprised at the amount of musicians who underestimate/ignore the real cost of delivery for their organisation and understanding how the business world talks about this stuff is the first step to getting it right. Which means when other organisations don't survive the 'interesting times' we are in, yours will.