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Financial
- The organization was not financially ready to undertake a facility project. In many cases, this was because the organization’s finances were limited. They had skated by prior to the facility project, and upkeep of the new facility intensified their weaknesses despite increases in audience/clients and fundraising. Or, staff and the board organized financial reporting studies around foundations and grant applications without also using them as a cost-benefit or other analysis tool.
Sometimes, programs assumed to be cash cows are not carefully or fully tracked. They turn out to be far more expensive than thought, with lower profit margins than expected. Sometimes, normal fluctuations are misconstrued as signs of growth.
- The organization is not financially strong enough to operate the new facility. Organizations that were financially healthy otherwise conducted no thorough forecast, based on real numbers, of the first 2-3 years in the new building. As such, the organizations assumed they could reach their new budget goals without preparing for start-up losses.
Some organizations believed they’d be able to cover the costs of a new building because funders said they’d fund some part of the program. But owning a building usually requires increased general operating -- not programming -- funds, and those proved hard to obtain.
- Cash flow needs weren’t worked out as part of the financial package. Even if the funding goals were met, the cash didn’t come in time to pay the bills. In a few cases, the organization never fully recovered from this challenge and became chronically cash-starved, even if successful in all other ways. These circumstances threatened their very existence.
- The true project costs were not fully understood. Usually, the full cost must include:
- Hard costs (bricks and mortar)
- Soft costs (fees, licenses, feasibility studies, mitigation work)
- Administrative ramp-up costs (investment in new staff, and what they must operate)
- Income loss costs (regular income loss due to the project)
- Facility “tweaking” costs
- Many groups thought only in terms of the hard costs. Also, people often rely on the architect’s cost estimates and are surprised when all contracting bids come in substantially higher, as they usually do.
- It was assumed that property taxes would be waived starting in the first year. It usually takes 5-7 years to get a property tax exemption. Until the exemption is given, the organization is responsible for paying the taxes, which may be quite hefty. See Chapter 16: Property Taxes for more information.
- There is no Plan B. Lacking a back-up plan can be devastating.
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