9 September 2015

The Gate 2015 (Act II: expenditure)

Get in the van: Grounded on tour. Image taken from The Gate's website.
With The Gate's 2015 revenues enjoying the success of Grounded's UK tour (a first for The Gate), it would be reasonable to make the assumption that costs did not stand still. Indeed, The Gate did spend more money in 2015 than in 2014, as the below summarised expenditure breakdown demonstrates.

The £108,402 change in Charitable Activities largely results from increased spending on Production Costs (up £39,967 but offset by ~£40,000 savings in Theatre Running Costs and IT Costs), Production Wages/Salaries (up £83,795) and Travel/Transport (up £18,277). Precisely the areas you would expect spending to show up when producing a tour. It is noteworthy that there was little change in the ~£22,000 spend on marketing/advertising (actually a slight decrease) despite this additional activity. Unfortunately there's no specific breakdown of Production Wages/Salaries which would help understand how production and administration staff were deployed. Not an accounting imperative but is mentioned in The Charity Commission Statement of Recommended Practice (Section 9.29 of FRS102 in case you're wondering) and does significantly aid understanding of how an organisation is producing work. Maybe next year?

It's difficult to categorise The Gate's 2015 expenditure into Support Costs and Production Costs because of the aforementioned lack of insight into how The Gate's 21 staff (up from 17 in 2014) were deployed. Always worth mentioning the average salary (flawed though it may be as a measure since it includes part-time staff and, in The Gate's case, actors as well) and for The Gate it stands at £13,329 (for reference, the inner London median annual gross wage is reported by the ONS as £34,473). Also worth a mention that no employee earned more than £60,000 and no remuneration or expenses were paid to trustees in this period.

The other expenditure standout is the £50,559 cost of Generating Fundraising Income. This can be attributed solely to fundraising event costs celebrating The Gate's 35th anniversary year. Given that the amount of revenue generated by fundraising events in 2015 was £166,585 this looks like money well spent.

Spending money well is something The Gate seem to have been excelling at over the last few years. In 2011, expenditure was significantly higher than the generated revenues, resulting in a deficit of £105,047. In every single following consecutive period The Gate have improved the relationship between revenue and expenditure. In the 2015 accounts, expenditure is actually below 2011 levels but revenue is up ~41%. The chart below shows the closing of the gap in 2012, the crossing over into surplus of 2013 and the continued expansion since.

The big difference between an organisation like touring powerhouse Paines Plough and a producing house like The Gate is the monthly overhead. Estimating that The Gate have running costs of approximately £57,000 per month (based on designated funds of £200,000 stated as covering 3.5 months running costs), they have more than double the overhead of Paines Plough (estimated at £25,000 a month and based on annual support costs from previous analysis). Perhaps an obvious point but it's that overhead that can cause major headaches if revenues drop sharply and unexpectedly.

A potential problem for The Gate could be that with 34% of their income coming from philanthropy, they are more exposed to sharp drops in revenue than Paines Plough. Personal giving is linked to the wider economy in volatile ways: consumer pessimism and economic instability will reduce giving but low interest rates encourage it (theoretically: the feelgood factor of giving to a cause outweighs low returns on savings). The trusts and grants that form the majority of Paines Plough's income tend to be formed of funds that are locked away for a longer period of time and are not subject to the whims of the consumer: they're a little more insulated from economic volatility. Coping with this additional risk definitely requires a 'make hay while the sun shines' approach and with a healthy surplus of £200,991 in 2015, it looks like The Gate are doing precisely that.

Looking forward, 2016 could also return a surplus but expect it to be diminished since the substantial gains from specific fundraising events are unlikely to be repeatable. The success of Grounded will also need to be replicated in some form but The Gate are in excellent early shape with Fringe First winner The Christians. In the years following a substantial surplus, organisations understandably tend to push those funds into production costs so do expect to see costs rise. However, with a rolling three year business plan in place, it would be surprising to see an excessive increase in expenditure over the next period and The Gate look very well placed to deliver on planned strategic growth out to 2018.