Understanding the financials in the Annual Report
Take a deeper dive into the 2019 BHS Annual Report in this series, starting with the financial data.
Since 2015, the Barbershop Harmony Society has published an Annual Report that it distributes to all members by way of The Harmonizer and online at www.barbershop.org/annual-reports. Although the practice is common in the nonprofit world, it is relatively new to BHS. Why bother? Everyone knows what barbershop is and what we do, right?
Two main reasons jump out. First, transparency with members, community leaders, fellow singers and funding organizations is vital. Although financial reports have always been published in legal compliance and have been available for inspection on request, they had been a bit, *ahem*, dry. The numbers all added up, but didn’t always provide much meaning. As presented now in the Annual Report, it is easier to see the relationships between revenue and expense, that is, where the money comes from and where it goes.
But the real meaning is in the why: Why do we do what we do? Why do we have conventions? Why do we work on bringing music to high school and college classrooms? What is the impact of all our work—the value delivered to members and singing communities, and more broadly, the impact we collectively are making in the world? Those questions are all interrelated, and the flow of dollars helps tell the story.
Over the course of a few blog posts, we’ll unpack the 2019 Annual Report at greater depth, starting with the captivating world of numbers.
These resources will help you understand the discussion
In addition to the high-level topics summarized in the Annual Report, our discussion delves more deeply using these resources:
- Audited 2019 financial statements
- BHS Board Income Statement Summary (December 2019) - Post-Audit FYE
- Treasurer / CFO explanatory notes
- Recently filed 2019 Form 990, the main report to IRS, which is used by many external organizations as a financial scorecard
- Folder containing audited financial statements for the Barbershop Harmony Society and Harmony Foundation International
Baseline activities deliver value directly to our barbershop world
The first 65% of our income from dues goes into the programs directly supporting BHS quartets, chapters, districts, and communities: member services; music and leadership training; library, publishing and clearance services; and The Harmonizer. Bringing more people into the barbershop world through our outreach, communications, and marketing programs account for the next 25%. The final 10% of expense goes to overhead: IT, administration, legal, etc.
Programming is self-sustaining
This is all financed by a combination of member dues (34% of revenue), events revenue (22%), and program fees (43%). The budget is set up in a way that revenues from programs like Harmony University and the International Convention cover all direct (non-labor) expenses. For example, Harmony University tuition more than offsets the direct program cost for the week at Belmont, so it helps support other education efforts. In fact, in 2019, the entire baseline budget netted out $91,502 revenue exceeding expense— beating projections by $86K!
For comparison, here’s how we’ve managed these resources over the past eight years:
This careful stewardship of BHS resources toward the success of existing barbershop groups is vital to the health of the entire barbershop ecosystem —and it makes it possible for us to generate the new activities and programming that will expand our world.
Strategic finance and our Strategic Vision: using our assets to build our future
Everyone in Harmony: a long-term investment in the future of singing
Probably the most complex part of interpreting the 2019 report, its gain/loss, and its impact today is understanding the financial structures used to vastly expand our effort in all directions to bring barbershop harmony to new audiences, new members, new singing communities, and new fans and customers of all kinds.
Our 2007 purchase of the headquarters building has proven to be a fantastic deal. Thanks to the rapidly appreciating value of downtown Nashville real estate, it has become a strategic financial asset we can leverage to support our expansive vision. As of 12/31/2019, the headquarters building was carried on the Society’s financial statements at $3.4 million, consistent with accounting standards, but the property had an appraised value of $10.6 million as of January 2019 . . . $7.2 million of equity value not reflected on the Society’s financial statements.
When the Society Board adopted the Strategic Plan in 2017, it called for massive efforts to reinvest in critical areas: a deep commitment to supporting chapters and othe singing communities; a renewed emphasis on quartet singing; a capability of supporting all people who want to sing barbershop, regardless of gender, race, age, economics, etc. (Read the strategic plan here.) Implementing the plan would require an additional $2.4 million spread across 3+ years, over and above the existing baseline activities of the Society.
A credit line of $3.325 million secured by our headquarters building was obtained in 2019, and all those Strategic Plan activities were launched in late 2018 and early 2019. The annual debt repayment (beginning in 2022) of approximately $300,000 will be offset by an estimated $300-500K in annual lease revenue from part of that space. Negotiations with a leasing agent are moving forward as anticipated, so this looks very positive.
Why discuss this at length? Well, one misconception raised in recent months has been that 2019 ended in a catastrophic loss, when in fact, it ended pretty much as planned—better, in fact. The “on budget” program summary (what we consider baseline operations) showed net revenue exceeding expenses by $91K, or $86K better than expected. The Strategic Plan implementation spending totalled $623K, about $500K less than initially expected for the year, although that allocated money has continued to drive forward those expansion programs into 2020.
Again, and this is important: there were no surprises in how 2019 ended financially, and this outcome had been planned for several years. We see it as a real virtue that we can extract value from our beautiful real estate, and funnel that money into the programs needed to realize our vision of Everyone in Harmony.
For further information
View the online town hall discussions of BHS finances that were held in June 2020.
Still to come
In the coming weeks, we’ll dig deeper into other topics addressed in our Annual Report:
- How BHS is supporting lifelong singing
- Power of harmony singing to connect individuals and singing communities
- Our Strategic Plan in action