Building on feedback from the sector, including organizations such as CAPACOA seeking a broader definition of who could qualify, this finalized version attempts to clarify what CRA finds as acceptable examples of appropriate purposes to merit charitable status.
First, there are three broad categories of arts-related activities that could qualify as charitable purposes under one or more of the four heads of charity, including:
Advancement of education;
Exhibitions, performances and presentations of artistic works;
Activities that enhance an art form or style within the arts for the benefit of the public.
In particular, CRA has clarified and expanded details in its arts forms and styles appendix, thus opening the door for more presenter members of CAPACOA to garner or maintain standing as a charity.
If you are interested in exploring these ideas in more detail, these links will be of value:
Back in November, I attended a symposium called L3C and the Arts at Columbia University in New York City. The event was designed to be discussion around how a new form of incorporation (the L3C) in the US can be used for arts organizations. I Live tweeted the event and the Storify of the tweets from the day can be found below.
Low-Profit Limited Liability Company (L3C) is a form of incorporation that is a hybrid between a for-profit business and a not-for-profit business. It was formed by augmenting the existing Limited Liability Company (LLC. We don’t have the equivalent in Canada; essentially it’s a hybrid of a sole proprietorship and a corporation). The L3C differs from the LLC in that the articles of organization (similar to articles of incorporation in a Canadian Not-For-Profit) must state one of the IRS’s charitable purposes. Because of this, an L3C can receive the money that charitable foundations must give each year (called Program Related Investments, or PRIs).
Basically, an L3C allows a company to accept investment and payout investors while still being able to receive funding from foundations. Champions of L3Cs say that it’s a great way to diversify revenue sources and raise capital to start an organization while critics of L3Cs say the form of organization isn’t so attractive because there isn’t the ability to issue tax receipts for donations.
The L3C and the Arts symposium brought together the co-founder of an L3C organization, a lawyer involved in the drafting of the L3C legislation for several states, the executive director of a theatre arts services organization , the executive director of a theatre organization with an L3C subsidiary organization, and the head of Columbia’s theatre program. After being briefed on the technical aspects of the L3C, the discussion then turned to how the L3C can work in the arts world.
Here’s some main points that brought up for how the L3C can work in the arts:
The L3C is an interesting new tool to consider when forming new organizations, but will not work for all circumstances.
An existing NFP should not change it’s form of organization to an L3C. It should be considered for organizing a new company or a new subsidiary business.
The main drawback for arts companies is the inability to issue tax receipts for donations.
It may be a good form for independent artist and smaller collectives, such as those who use crowd funding sites like indigogo to raise money.
Art forms that have a higher capital potential (like film) may be more suited for the L3C than art forms with a lower capital potential (like visual arts organizations). Performing arts falls between film and visual arts.
I tried to keep a Canadian perspective in mind when listening to the discussion. The L3C form would not work exactly in Canada mainly because Canadian not-for-profits do not rely as heavily on foundation revenue as in the US. But, the discussion on how hybrid forms of organization can work in the arts was quite interesting and applicable for Canadian not-for-profits, especially with the introduction of the hybrid Community Contribution Companies in British Columbia.
Artists and arts organizations need to set prices for tangible goods (e.g. works of art, CDs, publications) and for services (e.g. admissions, registration fees). The considerations for goods vs. services are rather different – as are the circumstances of individuals and organizations.
These tips are offered from a very generic point of view. I have tried to make them applicable in a wide variety of situations. This may make them a challenge to apply specifically! I hope the examples will help to clarify how you might use these ideas to support your personal decision-making.
There’s no recipe. Take heart if you feel uncertain about how you are going about setting your prices. My research turned up no ‘correct’ method, in the art world, the not-for-profit world as a whole, or in commercial business. There are, however, some useful guidelines.
Take your time. Think of this as an iterative or recurring process. You’re going to draft a price list, sleep on it, run it past colleagues and friends, and revise it again before making a final decision.
Three approaches. Here are three approaches that you might find useful. You can choose the one that works best for you, or you can consider all three, and decide after playing with the options
A. Cost-based: Figure out your costs, and charge more than that. Price = your cost + mark-up – e.g. If I’m selling admissions to a concert, I could add up all of the costs, subtract grants and donations, and divide the net cost by my estimate of how many people will attend. Thus, if I expect to spend $12,500 and I have $7,500 in grants and donations, I need to raise $5,000 from ticket sales. If I anticipate that 200 people will attend, I need to charge each person $25. That gives me my break-even price. If I wanted to make a profit, I could then tack on a mark-up of so many dollars.
Price = a multiple of your cost – e.g. Book publishers need to pay for editorial expenses, writer royalties, book production and promotion, as well as their own administration. They often base their book prices on the printing cost, by charging 5 or 6 times cost. So, if a certain book cost $8 to print, the publisher would look at a price between $40 and $48. Experience has shown that a multiple of 5 or 6 generally covers all of their expenses.
B. Market-based: Charge what everyone else charges ‘Everyone else’ should include comparable artists/arts organizations as well as the other options your buyers might consider; for instance:
– A performing arts organization might compare its prices to what its peers are charging – as well as to the cost of a movie ticket, the cover charge for a band, and other ‘night out’ options
– A visual artist might look at what their buyers are considering. For instance, if the art in question is usually purchased for its decorative value, buyers may be deciding between buying a picture and another decorative object (e.g. fine craft, furniture, area carpet)
C. Value-based: What’s it worth to you? This is how hotels and airlines do it – not to mention gas stations and ticket scalpers. Today’s rate on a hotel room or an airfare depends on how far in advance you’re booking, plus demand, plus any other factors that affect its desirability. The price a scalper can get before the game is vastly different from what he’ll accept half an hour after the puck drops!
Know your limits! - Floor = your cost (If you sell below cost, you’re losing money!) – Ceiling = what the market will bear (You can’t charge more than what people are willing to pay.)
Consider your environment and how that might affect the prices you can charge. - Geography: are you in a large city, a town, a rural community, a remote area? – Accessibility/distribution: how easy is it for people to come to you – or for you to get your work to major centres of population? – Economy: how’s the local economy doing, how much disposable income do people have? – Political framework: what taxes do you have to take into consideration, what public policies affect you (e.g. copyright, availability of government funding)? – Local arts community: are there many colleagues/competitors close by, or are you the only game in town?
Consider how the characteristics/qualities of your art – whether it’s a canvas or an exhibition or production – should affect its price. - Artistic merit is definitely a factor in pricing – and one of the hardest to confront. It’s also a factor that’s likely to change over the course of your career. You need to consider the significance of your work in relation to other artists, and the market overall.
– Popular appeal is also important. It’s easy to see that more people want to buy tickets to mega-musicals and Broadway-style shows than to a lot of other performing arts genres. You must consider the size of your market, and hence the volume of demand for your work. This could push the price up or down! A lower price might make you more attractive. On the other hand, aficionados may be less price-sensitive, and thus willing to pay more for something harder to come by.
– Use price to send a message about quality and value, and where your work fits in the marketplace. Take coffee shops as an example: relative to your competitors, you need to determine if you’re more of a Starbucks or a Tim Horton’s!
Uniqueness is not a factor in setting prices in the arts. You’re unique, just like everyone else. Every artwork is one-of-a-kind: the visual art collector, or the performing arts engager, is choosing amongst a number of unique offerings, each of which has its appeal.
Don’t let the price be an emotional decision! Price your work dispassionately, without reference to your attachment to it. – Don’t assume that your personal favourites will fetch a higher price. Your investment of time, effort and angst in the creative process won’t necessarily speak to the buyer or audience. If an artwork is so significant for you that you can’t part with it at your normal price, perhaps it’s not the right time to offer it for sale.
– By the same token, you may not love a certain piece, and therefore be tempted to underprice it – but don’t assume that others will share your feelings for it.
Establish your base price according to your most typical art. It may be useful to think about how new cars are priced. Often, there’s a ‘base price’ plus the option to purchase ‘extras’ – or to get the car ‘fully loaded’ In the same way, a visual artist, a performer or an arts organization may be able to identify their price baseline, and what their extras might be, and establish a range of prices for different types of work. For instance:
– An actor taking a lead role may be able to negotiate a better weekly rate than when he or she accepts a supporting part. A musician may be able to charge more for a soloist engagement than for a sideman gig. The difference is related to the perceived value of the service.
– A visual artist may charge more for larger or more elaborate works. This might be either a cost-based or a value-based approach.
– A theatre company may charge more per ticket for the musical it’s offering this year than for its one-hander. This would almost certainly be a cost-based approach related to the number of artists involved and the scope of the production values.
Stick to your guns! It’s a good policy to keep your prices consistent no matter who the buyer is. This can be especially important for visual artists selling multiples or working with more than one dealer – and for performers hoping to build a client base of repeat customers.
– If you’re an experienced artist with a track record, document your sales. When you can see how works have sold over time, it’s easier to be consistent about pricing your new pieces.
– If you’re still building that record, you can achieve consistency by pricing your art like a realtor would price a home for sale: look at comparables in terms of medium and style, as well as in terms of fellow artists at a similar level of accomplishment
Think carefully before you discount, to make sure the price cut will work for you strategically.
A. Discounts may be standard in some circumstances, for instance: – A commercial gallery may offer a standard 10% discount to arts consultants purchasing on behalf of clients, or to regular customers who purchase a lot of art. – Performing arts organizations commonly offer discounts for group purchases, as well as to students and seniors, and for less popular nights. – NOTE! Where a range of prices is in effect, you need to be clear on which is The Price. Your regular price is the Saturday night, full price amount . Everything else is a discount.
B. Discounts may be used to introduce negotiation , so you can close a sale, for instance: – You might want to offer an incentive to a good client to buy more – You might decide to make it possible for someone to buy the work who loves it but can’t afford the regular price.
C. You might wish to use discounts to adjust to market conditions, for instance: – If tickets are selling poorly, performing arts organizations may consider putting out two-for-one coupons, or offering discounted tickets within the arts community. – A gallery in a tourist town might wish to consider special offers in the off-season.
D. You might be tempted to price lower than your colleagues/competitors to gain an edge. Think seriously about whether this will really work in your favour. For instance: – Performing arts patrons definitely react to price points – but not necessarily to relatively small differences. Someone might decide that the current Broadway touring show is too pricey – but if they’ve decided to spend the money to see a local company, they’re more likely to make their choice based on the title, the artists, the reviews, etc., than on a couple of dollars’ difference in price.
– If all practitioners of a certain discipline charge within the same range, they can create a “going rate” which sets buyer/audience expectations, and helps everyone plan their budgets.
Don’t forget to raise your prices when it’s appropriate! - A useful rule of thumb for visual artists is to contemplate an increase when you’re selling at least 50% of last six months’ output.
– Another benchmark would be to look at an increase when you’ve experienced six to twelve months of consistent success in your work. Once you’ve established steady demand, it’s time to re-examine your pricing.
This tip sheet was created by Heather Young of Young Associates for the workshop ‘How Much Am I Worth? How Much Do I Charge? – The Secrets of Pricing and Negotiating’ which was presented in March 2006 by the Cultural Careers Council of Ontario. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.
I’ve been asked for advice on the least-expensive way to manage credit card processing.
Over the last number of years, sales by cash and cheque have dwindled, and the majority of earned revenues and individual donations are received by credit and debit cards and other forms of electronic transfer. In the past, processing fees applied only to a slice of our revenue base: now the “bite” can be significant.
On the plus side, the market is becoming more and more competitive. It’s not that long ago that we all had to have multiple bank accounts if we wanted to accept multiple payment methods, because some banks were allied with Visa and others with MasterCard. These days, numerous payment processors accept all major credit cards and funnel them to the bank of your choice
The array of payment methods continues to multiply. A quick Google search turned up the factoid that direct debit was invented only in 1984. More recently, arts organizations started wrangling the 24/7 payment universe as they put their box offices online. The next generation includes methods of accepting payments by smartphone – and the evolution will continue.
If you haven’t examined your payment processing costs (and methods) lately, maybe it’s time to shop around.
I put the question of inexpensive processing for Canadian non-profits to a number of LinkedIn groups, which provide a forum for sharing knowledge among colleagues internationally. The summary that you’re reading is therefore not the product of systematic research, but rather the contributions of a number of generous folk from Canada and the US who offered their recommendations, with a little fact-checking on my end.
I’m sure this list is far from exhaustive, but it’s a good starting point for comparison shopping. Readers will need to investigate which options are best suited to their needs.
The grid below captures an array of processors. It is followed by additional tips and recommendations from LinkedIn members. Thanks to them for these great ideas!
Name of Service
Operating in…
Website
Accepts (per website description)
Comments
5LINX Credit Card Processing / Pivotal Payments
Canada
http://everyswipecounts.5linx.com
Credit and debit cards
They promise the lowest discount rates in the industry.
Canada Helps
Canada
http://www.canadahelps.org
Can accept gifts of securities as well as credit cards.
A registered charity in their own right. Processes donations for other charities. Not the best rates, but you don’t have to establish your own accounts.
Credit, debit, point of sale, QR codes and mobile giving.
Canadian company, focused on non-profits. A Ticketmaster subsidiary.
MOCA (Momentum Canada) Payment Systems
Canada
http://www.mocapayments.com
Visa, Mastercard, AmEx, Discover, chip and pin ATM cards.
Geared to small and mid-sized retailers in Canada.
Moneris
Canada
http://www.moneris.com
All major credit and debit cards and all major point of sale solutions.
Optimal Payments
Canada
http://www.optimalpayments.com
Card and non-card payments; chanels like IVR, MOTO and virtual terminal.
LinkedIn user reports no hidden fees; just one monthly charge and credit card fee.
PayPal
Canada
https://www.paypal.com
MasterCard, Visa, AmEx, Discover
Square
Canada
https://squareup.com
MasterCard, Visa
New in Canada, October 2012. Card reader attaches to iPhone or iPad. See YouTube demos.
And now a few comments from LinkedIn contributors:
Usually if you are a member of the local chamber of commerce or other similar association they have better rates than being on your own.
…Gwendoline Turpin, via Bookkeepers Club
You need to be careful when investigating payment processors. Many that we looked at offered an attractive rate but then hit you with additional fees and monthly charges that make it more expensive.
Ian Hayes, via Non-Profit Professionals Toronto
I have approximately 150 arts clients across Canada using our Theatre Manager software and the majority of these (95%+) are non-profits. We’ve built 3 PCI compliant payment gateway interfaces into the software. This allows our clients options on which merchant account provider they want to use. Predominantly, Canadian clients use either Global Payment Systems or Chase Paymentech for merchant accounts. Based on the feedback, I’ve received the fee structures are fairly comparable, but as in indicator, we’ve noticed a growing number of our clients switching to Paymentech. I’m not aware of any ‘special’ rates for non-profits. From what I’ve been told, each organization is vetted based on the merchant account provider’s risk criteria.
…Tod Wilson, via Performing Arts Administrators
I’ve been quite successful negotiating with other processors (Moneris and Global Payments) and obtaining rates equal to or better than those available through Costco. Not just for NPOs and Charities of which I have quite a few, but also for regular retail operations.
The applied rates vary quite a bit depending on the “type” of card – it’s not just about credit card vs. debit card, but affiliate, international, non-VISA/MC cards, etc.
Global Payments (at least) refers to these as Interchange Downgrade Fees (IDF) and produces two tables E5 (enhanced) and E1 (standard). Typical differences between these are between .1% and .5% depending on transaction. E1 is generally what most retailers receive. In addition, they will generally also provide free (or reduced-price) terminals.
The details of the fees are complex as there are 31 card categories. It depends on which your client receives most – and the average value, volume etc. of these.
…Don Hobsbawn, via Sage 50 Canadian Edition Sage Accountants Network Members
Don is absolutely correct. If you know the number of monthly transactions, monthly volume in $, average transaction amount and types of cards being used you can negotiate better rates from your Merchant Account Provider (MAP).
If you already have a merchant account you should compare the numbers at the end of your first year with the numbers forecast when the agreement was put in place. You may be able to renegotiate the contract for a better rate if the numbers are higher than the initial projections.
It also doesn’t hurt to let your existing MAP know that you are shopping around. That can motivate them to offer better rates, or even to match the best rate you can find.
To provide the most flexibility in payment types NFP’s & Charities can look at a Paypal Merchant Account that offers many donor / payment options through a website gateway.
If the NFP / Charity is small, and don’t want to carry the monthly fees and equipment rental costs they can look at “Card Not Present” or online based systems that may offer reduced rates.
There are also fee based organizations that provide payment options for Registered Charities that may not have the infrastructure to provide payments, anonymous or recurring donations and tax receipts. They take a percentage of each donation, then EFT the balance to the Charity.
Before you recommend any of these options you’ll need to conduct a thorough assessment of the needs of the organization to help find the best fit! If you’d like to evaluate the different MAP’s there’s a guide on building a spreadsheet to do so at:
…Dave Greene, via Sage 50 Canadian Edition Sage Accountants Network Members
(Note on Dave’s last suggestion: the link takes you to the website of FirstData, which of course wants you to use their service! However, they provide useful generic information on how to evaluate your options.)
Sage, the makers of Simply Accounting, have announced several brand changes, including a new naming structure for their products.
What’s changing?
From the Sage website:
In 2012 the names of many of our core accounting and ERP lines, including those designed for nonprofits and the construction industry, are changing. These products will be identified with a numbering approach where higher numbers denote increasing levels of product capability or sophistication. Our product numbering sets include Sage One, Sage 50, Sage 100, Sage 300, and Sage 500.
However, these changes are more than in name alone. Each product family will offer integration to common business solutions such as CRM, Fixed Assets, HRMS, and Payroll. Sage Connected Services provide additional capabilities, including online payment processing, mobile access, and data security, while product support through Sage Business Care and Sage Advisor technology ensure you get the most from your Sage investment.
