I’m confused. I got this memo in the mail (Exhibit 1), and the spreadsheet wasn’t attached. I tried to contact the treasurer but I can’t reach her. Will you see what you can do with the information in the memo to prepare the spreadsheet for me. I’ll need it in a couple of hours since I need to leave for the meeting then.
Lynda McGahan, a member of the board of The Coolidge Corner Theatre Foundation, was speaking to Max Bessenov, her recently-hired executive assistant — an MBA with knowledge of nonprofit organizations. She continued:
The memo suggests that we need a pretty sizable surplus, yet the Coolidge is a nonprofit organization. Whether you call it a surplus or a profit, the result is the same, an excess of revenue over expenses. Yet, it seems to me that as a nonprofit organization, the Coolidge should not be earning a surplus. I’m not sure I buy any of the arguments given in the memo, so I’d like your views on those too.
With that, Mr. Bessenov set out to see what he could do.
The Coolidge Corner Theatre was a greater-Boston icon. Located in Brookline, a suburb just outside of Boston, The Coolidge was the last surviving art-deco movie house in the area, and was considered a landmark. The Coolidge Corner Theatre Foundation had been incorporated as a nonprofit organization in 1988 to operate the theatre. It’s mission was to promote public interest in film and to operate the theatre as a multi-functional community cultural center to promote the performing arts.
Over the several decades prior to the late 1990s, the Theatre had lapsed into a state of disrepair and the Foundation has incurred several operating deficits. In early 1999, the board had hired a new director, Joe Zina, whose job was to breathe new life into the Theatre and return the Foundation to a viable entity. According to the local newspaper, The Brookline Tab, Zina was “. . . the man who can lead the venerable cinema into the 21st century.”
Mr. Zina began with some basic improvements: painting walls, replacing carpets and renovating the concession stands. He also began to raise funds for some of the larger projects that were needed in the restoration effort: bathroom renovations, electric and lighting upgrades, ceiling repairing and repainting, handrail replacement, aisle lighting installation, new heating and air conditioning, life/safety system upgrades, and a host of others.
Within two years, Mr. Zina had raised close to $200,000 in grants and contributions to support the renovations. He also had turned the Theatre’s deficit operations into profitable ones. The question that he knew the board now needed to address was how to sustain the Theatre once the contributions abated. He had raised the issue at a meeting of the board’s executive committee, and the board’s treasurer has volunteered to take on the task. The result was the memo contained in Exhibit 1.
- Prepare a spreadsheet that addresses the issues discussed in Exhibit 1. Is the figure of $25,740 for a cash surplus correct? If not, what should it be?
- What are your reactions to the other three requirements discussed in the memo? Is the treasurer’s reasoning correct? If not, how would you modify her recommendations?
- How much cash should the Coolidge maintain in its cash reserve account?
- What important issues has the treasurer failed to address?