Understanding and Developing Appropriate Museum Debt Policy: Practical Capital Structure Analysis for Museums

Abstract

This thesis provides a template, in three parts, designed to enable museum financial management to comprehensively address and analyze museological capital structure both from a theoretical and practical perspective. To this end, this thesis first proposes a methodology to understand and develop museological financial philosophy, then offers a process to evaluate and value museum capital structure, and finally, unites fiscal philosophy and capital structure analysis by proposing a strategy for designing and constructing practical museum debt policy.

In the first section, the thesis presents and substantiates a case for elevating the importance of the business of museums by proposing that museological organizations adopt and communicate a fiscal mission statement. The thesis then provides a practical format for museum management, as well as trustees and board members, to define and formalize desired financial practices and goals. Specifically, museological fiscal mission statements must address organizational philosophy regarding financial governance, priorities, strategies, and communication.

In the next section, the complexity of nonprofit capital structure analysis is addressed, as well as the need for museums, in particular, to examine and quantify the manner in which they support their assets. After reviewing the history of museum funding streams, the thesis proposes analyzing museum financial structure by conceptually separating the operating business from the collections and any endowment. A substantiated methodology is offered for valuing the museum operating business using a market based approach that analyzes museum revenue both as perpetuity and to comparable commercial revenue streams.

In the final section, guidelines are provided for creating organizational debt policy. First, the thesis argues that an appropriate capital structure mix is critical to effectively carry out the museological strategic mission, and that though it adds additional risk, debt is a flexible financial tool that should be utilized. However, debt requires discipline; a discipline that mandates formalized policy. To create an outline for formalizing policy, the latter half of this section adapts research from the higher education and healthcare industries, incorporates specific ideas regarding fiscal mission statements and capital structure, and details the formulation of a hypothetical museum debt policy.