Smaller arts organisations facing worst financial struggles

Smaller organisations in the arts and culture sector are struggling the most to balance their books, an investigation by Arts Professional in partnership with financial benchmarking company MyCake has found.

Analysis of a constant cohort of 2,800 organisations across the UK that filed accounts for every year since 2018 shows the combined deficit of those with an annual income of £100k or less was larger than any other income band.

Overall, in 2023, the 1,204 organisations in this group group reported combined expenditure of £53.9m against income of £44.7m - a deficit of 20.7%.

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• Arts finances in worst state for five years
• NPOs profitability in dramatic decline

Organisations with income between £100k and £1m have also been hit hard over the five-year period analysed.

Having been in profit for the four year period 2019 - 2022, they posted a collective deficit of 7.2% in 2023, with expenditure of £425.6m against income of £396.7m.

Organisations in both the £1m - £10m and £10m+ income bands also posted their first deficit for the five year period in 2023, at 1.87% and 1.84% respectively.

The analysis also shows that organisations in the three groups ≤ £100k, £100k - £1m, and £1m - £10m posted their best figures for the five-year period in 2021, many boosted by cultural recovery funding and reopening after Covid restrictions.

The situation facing smaller arts organisations is highlighted by the proportion reporting significant losses for 2023.

More than one in four organisations (27%) with income of ≤ £100k reported a deficit of 30% or more of their annual income, a five percentage point increase on 2022 when the figure was 22%.

More than half (52%) of these organisations reported spending levels 10% or more above their income during 2023, compared with 45% in 2022.

For organisations in the £100k to £1m band, 47% reported spending levels 10% or more above their income during 2023, compared with 35% in 2022.

Amid concerns about the plight of arts and culture organisations Arts Council England Chief Executive Darren Henley has said his organisation will focus on lobbying government to deliver interventions that are "most needed" and can have the greatest impact.

Specific "areas of need" will be drawn up by the funding body working alongside the Department for Culture, Media and Sport (DCMS) and the sector, before being handed over to the Treasury ahead of the Autumn Budget and a Spending Review next spring.

'Hidden differences'

Sarah Thelwall, Director and founder of MyCake, said her organisation has been grouping cultural organisations by turnover band since it built its first NPO benchmark back in around 2014.

"There are so many similarities within a turnover band and so many differences between turnover bands and these can be hidden if you only look at a cohort as a whole," she said.

"Here we are focusing on profit/loss-making data but it is also worth remembering that smaller organisations are likely to be different to larger ones in various other ways when it comes to financial operations - the scale of reserves they hold, the regularity of their grant income or the longevity of any grant funding, their ability to win contracts with their local authority.

"All of these can lead to a situation where the business models are more precarious with smaller organisations than with larger.

"Of course larger organisations are more likely to have finance specialists in the senior team whereas smaller organisations are more likely to rely on a trustee or book-keeping services provided by their accountant.

"This can mean that it takes longer to spot changes in the business model than in larger organisations who implement month end financial reporting."

'A systemic sectoral shift that may never come'

For Reece McMahon, Executive Director of London’s Chisenhale Space, which reported an income of £129,461 last year, the financial challenges affecting small arts organisations are becoming "unsustainable".

“Small grassroots organisations cannot compete with larger ones that have extensive development teams and resources, which allowed them to pivot during the pandemic to more sustainable income streams," said McMahon.

“There simply isn't enough funding to go around, and small organisations are already at a disadvantage. The risk versus success factor of hiring external fundraisers is becoming more imbalanced, with overall success rates in the sector dropping—one major arts funder recently reported a 4% success rate. 

“This often forces leaders to write applications themselves, adding to their already overwhelming workload. This constant struggle for funding creates a precarious "yo-yo" effect, where leaders must constantly juggle priorities, leading to burnout and high staff turnover. 

“This cycle is unsustainable, and many feel they are left to just wait for a systemic sectoral shift that may never come.”