Enter The Contingency

As part of my responsibilities as a board member for Baroque Band (a period instrument group here in Chicago), I recently drafted an addendum to our bylaws that provide for the creation of an official contingency operating fund; colloquially known as a rainy day fund. In this instance, it’s a sign of growth combined with a strong desire to be as self reliant as possible; meaning, we’d rather borrow from ourselves than a line of credit during expected lulls in cash flow.

hello dollarsBut in the course of my arts consulting, it never ceases to amaze me how many of my clients that have a long standing contingency fund in place refuse to use it at exactly the time they should. It’s a form of institutional paralysis and more often than not, it is the result of overly vague language dictating the fund’s designation and usage. Thoughtful language can help avoid that bear trap but sometimes the issues have far more to do with pride and personality than bylaw language.

Over the years, I’ve noticed that this type of institutional paralysis tends to occur more often than not in smaller budget groups, especially when a majority of the current board members were involved in building the fund.

As a board member, there’s a great deal of pride to be had from raising money for the purpose of a contingency fund. Traditionally, it isn’t a very sexy fundraising effort and could even be considered the ugly duckling among the extended family of capitalization efforts. Nonetheless, a well managed contingency fund is a cornerstone of fiscal prudence and good governance.

The irony kicks in when the time comes where aggressive debt management is needed, but failing to act by responsibly using the fund only serves to erode the good governance the organization has worked so hard to build over the years.

Think of contingency fund usage like this: you’re a lean, mean cheetah who had the foresight to build up a little fat so that when pickings are slim, you still have enough rapid boost energy to chase down gazelles when they appear and maintain until things pick back up. But failing to use that fat at the right time means your body will begin eating away at muscle; you probably won’t even notice it at first but when you finally do decide to get up and chase down that gazelle, the rapid boost isn’t enough because you’ve become too weak to do anything with it (meanwhile, the gazelle’s are getting a good laugh at your expense).

In the end, don’t fret too much over using a contingency fund under optimal conditions. Instead of fretting too much over how the organization will look if you start using it, replace that anxiety with pride in the fact that you were not only prepared, but you demonstrated the judgment to know exactly when and how to use your reserve. So get out there and enjoy your gazelle burgers.

About Drew McManus

"I hear that every time you show up to work with an orchestra, people get fired." Those were the first words out of an executive's mouth after her board chair introduced us. That executive is now a dear colleague and friend but the day that consulting contract began with her orchestra, she was convinced I was a hatchet-man brought in by the board to clean house.

I understand where the trepidation comes from as a great deal of my consulting and technology provider work for arts organizations involves due diligence, separating fact from fiction, interpreting spin, as well as performance review and oversight. So yes, sometimes that work results in one or two individuals "aggressively embracing career change" but far more often than not, it reinforces and clarifies exactly what works and why.

In short, it doesn't matter if you know where all the bodies are buried if you can't keep your own clients out of the ground, and I'm fortunate enough to say that for more than 15 years, I've done exactly that for groups of all budget size from Qatar to Kathmandu.

For fun, I write a daily blog about the orchestra business, provide a platform for arts insiders to speak their mind, keep track of what people in this business get paid, help write a satirical cartoon about orchestra life, hack the arts, and love a good coffee drink.

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0 thoughts on “Enter The Contingency

  1. I know a church that struggles with this trap, as well. Many of the “old guard” who were around when the church received a large bequest that started the investment base think the invested funds are only to be used in case the church burns down. This is probably because it did burn down, and was rebuilt, a few decades ago. However, no, this fund is not remotely enough to cover such an event. Instead, there are constant arguments about how to grow and serve the mission without adequate funding.

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