Event Finance – Your Pathway to Financial Sustainability!
Hi guys, you’re listening to the talking regional tourism and events podcast. My name is Linda Tillman, and on this show, we talk about how a successful tourism events economy can drive regional growth and community pride. We offer you tips, insights and even some great case studies on how you can create a sustainable visitor economy. Now let’s talk!
Welcome to the talking tourism and events podcast. Season one, where we’re talking events, episode 3. This podcast we’re talking about event finance, your pathway to financial sustainability. In episode 3, we are going to look at the pathway to financial sustainability to help you transition your events to a financially viable and self-sustaining position just like many other regional festivals in Australia and throughout the world. Having a clear and focussed pathway to financial sustainability will support the success of your event. This pathway will dictate the strategy of your event, and should form a large part of your decision making. It doesn’t matter how small your event is, or even if it’s just a community event. An event is a business, and it needs to be treated that way. We would not run our business without sound financial management and budgeting, so we should not ignore it for our event.
Before we start, I want you to think about something – what is your financial drive? Before you can define your pathway to financial sustainability, you need to be able to answer this question. Let me give you an example. I work with an event that’s managed by a rotary club. Their drive is to raise funds to support other rotary charities and to give back to initiatives in their community. Another event I worked with recently wanted to raise funds to build a new community hall. You need to be able to answer that question right now; what Is your financial drive? So, what is this pathway to financial sustainability all about? I’ll give you a quick overview of what I define as this pathway, and I'll share more of this in the podcast notes outlined online. For me, the pathway is stage one – there’s 4 stages – stage 1: you get seed funding for new events. So, to get a new event up and running, you need that seed funding. Stage 2 is becoming financially viable; so, this is within the first 2-5 years. Stage 3 is moving to self-sustainability; so this is beyond 5 years. And stage 4 I like to class as an optional stage, because not all events are interested in this, but stage 4 is commercialisation. So that to me is 4 stages toward financial sustainability. Most of the events that we work with are in stage 2 or 3, and they don’t have great appetite to go into stage 4. Most of them want to be self-sus without becoming commercial, which is absolutely fine, but as I said the key is being able to answer that question. I encourage you to take a look at your event right now. Have a look at your budget, discuss this with your committee. What stage is it in right now? And where would you like it to be? It’s very important that you agree on this as a committee. Once you’ve defined the financial vision or purpose of your event, that becomes part of your strategic plan. And that helps formulate your annual budget. How do you set you annual budget for your event atm? Do you have a treasurer or a financial manager? Do you outsource that to an accountant? What’s the process you go through? I want to talk to you a bit about this. Setting your event budget, your budget should become your new BFF. So, let’s have a quick chat about how we can actually set our budget on an annual basis in a very efficient and effective way.
So first of all, the committee need to work collaboratively to set budgets and to agree on their risk appetites. It is important that as a team the budget is set in that the level of risk taken is agreed upon. For example, do you want to take the risk of spending more on a headline act as a strategy to increase ticket sales? Or will you go with the same level of act s you’ve had in the previous years? Or do you allocate budget to engage professional assistance to help reinvigorate the program and marketing, or will you do what you’ve always done? So you need to be able to answer these questions in setting the budget. How much risk do we want to take? What financial decisions do we need to make in order to achieve our overarching objectives and vision. You need to also remember that as committee members, you are accountable for finances, so just keep that in mind when you’re making some of these decisions. Once the budgets set, you then have you finance coordinator/treasurer to manage the budget. It’s their responsibility to regularly report and reconcile the budget. I suggest you have a strong finance coordinator because they’re responsible for managing the budget and always keeping it up to date, and reporting regularly to the full committee. Too many events that I have worked with set the budget and then don’t even look at the actuals until post-event – and this is really scary! You need to get into the habit of reviewing your budget regularly. So, having your budgeted items with an actuals column beside it so you can track expenditure throughout the process is absolutely critical. And don’t be scared to ask questions. If you’ve got a question about any of the finances or the way the budget is being spent – as a committee member you’ve got to ask those questions.
Now when you’re setting the budget – this is an interesting question I often get asked - is it income or expenses first? Have a think – what would you say? I always suggest that you set your expenses first, based on the event that you want to put on – and that’s obviously based on demand and feedback. So you need to design the event, you need to identify the expenses to deliver on that event, and then you need to look at how you can generate the required income to make that work. If you can’t make it work, that’s when you need to start trimming your expenses. So setting the budget is a fairly long process and requires some real strategic input. This annual budget, once its set, that becomes one of your key planning tools, along with the macro-timeline we spoke about in episode 2, and your event strategy.
Then you have the fun game of balancing your budget – I don’t know how many of you have worked in events for long time, but you know, it’s really scary when you get a week out from your event and all of a sudden there’s all these unexpected or unnecessary expenses cropping up. It can become quite scary, so balancing your event budget is a real art. I just want to share with you a few things for you to consider when it comes to the income and expenses for your event. With your expenses, always make sure it’s an estimate, not a guesstimate. So what I suggest is that you always refer to the actuals from the previous event as your benchmark for expenses. Get quotes when setting your budget and don’t guess. The whole GST versus ex-GST conversation is interesting – my suggestion is whatever you decide in your budget, whether you want to include GST or exclude GST is just be consistent. It doesn’t matter, there’s no rule, but be consistent.
You need to give your portfolio managers the authority to manage their budget, and they need to know that there’s no excuses for overspend. Remember in module 2 we have the roles and responsibilities checklist with the budget allocation noted. This is what they will work to. Any sub-committee portfolio managers that want to make changes to budget allocations need to be discussed or approved by the committee – you need to enforce this. I’ve been involved in events where committee members or sub-committee members think, ‘oh, it's only $5 here, or $10 here’ but what happens is all of these little adjustments to the budget, or these little adjustments that are not approved in the budget, at the end become a big issue. So you need to enforce that process – giving your sub-committee portfolio managers the autonomy to manage the budget to deliver their job, but they also need to understand that they must adhere to that budget allocation and any overspends need to be approved by the committee. So as a committee you need to be prepared to adjust and adapt.
Now, when it comes to income, there’s just a few things I want you to think about. you need to decide on benchmarked ratios. For example. 5% less than expected income, or $500, then it’s a danger, and watch closely. Versus 15% or $1’000 less being a crisis, and a discussion is required. So you need to decide on some benchmark ratios that the committee are happy with from an income point of view, so as you’re monitoring ticket sales or revenue, then you can start to flag some of these things, and once you get to those benchmark ratios you know that you need to raise those with the committee. You need to understand your breakeven point. How much income do you need, or how many tickets do you need to sell to cover your costs? Make sure you understand your breakeven point.
And finally, make sure you have diverse revenue streams. I want you to reduce the risk and reliance on one or just a few revenue streams in case something goes wrong. It's not good enough to just rely on sponsorship or government funding, and on the other hand it's not sustainable to just rely on ticket sales. Always look at diverse revenue streams and opportunities to bring in new revenue streams.
Now another thing I want you to think about when we’re looking at event finances is scenario planning. I’m sure you’ve all done this, whether you’ve called it scenario planning or not, but I love doing this, and this is something you do in the early stages of the planning for your event. When you’re developing your event budget, basically what you do is you set targets and determine what the festival will look like based off a number of different scenarios, so you’ll have a best-case scenario, a worst-case scenario, and breakeven. But you may consider more than those, so a scenario for example might be we invest in a bigger name music act as a strategy to increase our ticket sales. So, if we invest that increased money, our expectation is that our income from our ticket sales will also go up. So, base the budget around that scenario and see what it looks like. The reason I encourage this is sometimes having those higher investments into bigger name acts or into new aspects of your event aren’t actually worth it when you break it down. So do some scenario planning of when you’re doing that budgeting process and really get an understanding of what is the best case for us, and like I’ve said a couple of times, breakeven should also be factored into that.
Now I’ve mentioned the need to have diverse revenue streams, let’s take a quick look at revenue streams I really want to dig a little bit deeper into this because we can’t survive without revenue streams, and we have so many events that are becoming dependent on sponsorship and government funding, and it's not sustainable. We can’t survive off just them. So, finding new income streams to replace that reliance for grants and sponsorship should be your goal. I always say to my clients, grants and sponsorships should be used as surplus funds, to help add new elements to the event, or to increase appeal to a new market. The event should be able to fund its running costs without them. So we really need to think outside the box to create our year-round revenue streams, and here’s a classic example; an event that I worked with recently, they purchased a marquee using a grant, and now they actually hire that marquee out for other community events and functions, which generates for them $30’000 a year in revenue. So it’s not even related directly to their annual event, it’s generating them income and revenue during the year. A fantastic way to generate revenue thinking outside the box. So, can you leverage grant funds to generate revenue for your event? Have a think about it! Now what about merchandising your event? Think about some brand partners that may want to come on board to do some collaborative merchandise. You know, we often see RM Williams or RB Sellars doing co-branded merchandise with some regional events. Think about, are you gaining the maximum from your merchandising from your event? You might need to bring a professional in to have a look at that for you. And we also need to think about ticketed versus non-ticketed events. Those of you out there who are currently a non-ticketed, completely free event need to think about making the transition. There’s absolutely pros and cons, and this needs to be managed extremely well, but we cant keep delivering events without a solid revenue base, and ticketed events, or a ‘consumer pays’ system is an obvious one. And it's expected, so don't feel bad about doing it. There's some things to think about when we talk about revenue.
Now, expenses may not be as ‘sexy’, or fun to talk about, but I just want to touch on expenses for a moment. As I said before when it's weeks out from your event and things are getting stressful and hectic it's so easy to overspend. So if you're not organised, there's this risk of overspending you know, that last minute call for extra toilets, or purchasing extension leads to plug in light towers. All of this will add up and eat into the profit margin for your event, so you need to be organised and understand how you're going to manage that.
We’ve already talked about setting your budget, now a detailed budget forecast covering all expenses is critical. You can't afford surprises so make sure you cover in things like your bank fees. Make sure you've factored in GST, because you don't want to get hit up with an unexpected BAZ bill. Factor in repairs and maintenance, factor in a retainer or a project management fee; ALWAYS have a contingency so I suggest 10 - 20% of your overall budget should be set aside for contingency. And there's other things like your APRA and licensing fees, so make sure you have a really detailed budget that covers all of those expenses.
One thing you can do is look at in kind sponsorship to reduce expenses. Don't just take in-kind donations for the sake of it, think about are these in-kind donations and offers budget relieving. That is, do they actually take off expenses from our budget? Now, close monitoring of expenses and thorough planning will prevent that unnecessary overspend. So like I’ve talked about, a really good finance manager or treasurer will be keeping a very close eye on the budget and the actuals within the budget, and raising those red flags as necessary. So, monitoring your expenses is extremely important, and balancing your budget with revenue streams will ensure success.
Now, I just want to wrap up, to give you some insights into some useful finance tools. It's all about improving efficiencies, right? Well, as you know the rEVENTS hub has amazing DIY tools, so all of the budgeting tools that I've talked about are available in the hub, but there are a few others I want you to consider. Now, book-keeping, invoice and receipting, cash flow ad reporting - I encourage you to look at Xero as an opportunity; they offer 25% discount if you can show that you're a non-profit status. What about managing stallholders, and ensuring efficient payments with less workload? Check out Stall Manager; it's a fairly new online platform, it's a Queensland based startup and it's kicking some serious goals. Now you need to look at online ticketing - this will improve your cash flow and increase your ticket sales - you might want to look at a platform called Local Tickets, but there's a million others out there.
Now look, I just want to finally say, online banking is king. Come on guys, no more cheques! Many banks now do two-person approval for online banking, so there's no excuse to have to have cheques improve that efficiency, improve the cash-flow, so make sure you're set up for online banking.
So there you go! How do you feel about taking your event on the pathway to financial sustainability? Setting targets, setting robust annual budgets, agreeing on the vision and implementing effective annual financial management tools will get you a long long way.
So there you have it, simple steps to securing successful financial partners for your event. Remember, this is all about systems and making you less busy. So, as you work through this for your next event, set up the sponsorship tracker that I’ve been talking about and keep everything in one place. This will save hours of time. Now I mentioned a little earlier that we would have some stuff for you. Over at reventsacademy.com you can purchase DIY tools to assist you with your financial management. We have budget templates and an outline of the pathway to growth that I discussed. If you become a member of the rEVENTS hub community, you’ll get all of this and more for free. It’s all waiting for you in the hub at reventsacademy.com
Thanks for joining us in the regional tourism and events podcast. For more great stuff, be sure to visit us at reventsacademy.com. Talk again soon!