If your expenses are higher than your income, you have a problem. This appears to be the case for Orchestra London. The London Free Press reports that the Orchestra is requesting an emergency cash infusion of $375,000 to cover wages owed to employees and source deductions owed to Canada Revenue Agency. If they can’t raise the money, bankruptcy may be an option.
Unfortunately for Orchestra London, a bankruptcy does not solve their two biggest problems:
- Their expenses are higher than their revenue. Even if they get a one-time cash infusion, they may continue to experience cash shortfalls in the future.
- Directors may be held accountable for a portion of the debts owed to Canada Revenue Agency and the Orchestra’s employees. Even if they file bankruptcy, the directors or their insurance company (if they have director’s insurance), may be required to repay some, or all of the money owing.
What Can We Learn?
Orchestra London’s financial problems are valuable for us as individuals. Two main lessons can be applied to our personal lives to avoid falling into debt.
- The first lesson is that if you have debt it is critical that you reduce your expenses to no higher than your level of income. Eliminating your debts in a bankruptcy is good, but only if you stop creating new debts in the future.
- The second lesson is that you should always look to the future and have a plan for your financial obligations. It appears that last year Orchestra London was “break even”. This year donations were less than anticipated, but the funds were committed, resulting in the shortfall. A drop in donations is much like a drop in income. Don’t make the same mistake; only spend the cash that you have, not the money that you expect to have in the future.
As I said in my radio interview, whatever happens I hope that the musical community in London will find a way to keep the Orchestra going, or find a way to replace it with a more financially viable alternative for long term success.