Art blossoms out despite bleak picture: In the second of our series on creative businesses, Angela Flowers talks to Richard Lander

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Nobody could pretend that these have been anything other than terrible times for art galleries. The large buyers have gone into hibernation and there is an endless list of galleries that have gone bust.

We have suffered as well - we made substantial losses last year against a small profit before tax in 1991 - but we've bucked the trend, expanding with our new space, Flowers East, at London Fields, which opened last year. We've also been helped by the prices of our paintings - you can pay up to pounds 50,000 but you can also buy many in the pounds 600- pounds 700 price range. I also think we have some pretty good artists.

We operate what can best be called a stable of artists. There are 28 of them for exhibit solely through us. They're not tied to us through a written contract but through a verbal deal - we seem to develop the best sales and the best relationships when an artist has complete confidence in us. They know we'd get pretty upset if they showed elsewhere but, very rarely, we have been known to turn a blind eye to the odd misdemeanour. We do also show artists from outside the stable from time to time, provided they don't have ties with another gallery. But we don't do that more than once every six or seven months - our own artists need a show here every two years or so to keep them in the public eye.

The basis of our financial relationship with the artists is simple enough. We take 50 per cent of the sale price, they take the other half. We add on (and pass on) VAT and the artist pays for the framing, although we may help out with an advance.

We also offer retainers to some of our best artists; we used to pay more retainers but the recession has meant that we pay only a few now. Like most galleries we give a discount to museums, which is shared between us and the artists.

There are some frighteningly high fixed costs that have to be paid for before the first painting is sold. Rent and rates have risen dramatically since we started the business in 1970 and have probably been the main cause of many other galleries going out of business. We also have to budget for three or four catalogues a year at about pounds 12,000 each.

Like many other businesses, we cannot make money on all our 'lines' all of the time. On any given exhibition we need to sell at least half of the paintings on display to break even and to sell that many is most unusual. What it boils down to is that our best- selling artists support the others. Our biggest seller is Peter Howson - who has just returned from the warfront in Bosnia - followed by Patrick Hughes, who I opened with back in 1970 and who has been faithful to the gallery for over 23 years.

But we are more than just an exhibition gallery. We have worked hard at diversifying into other sources of income. We saw a demand for prints, both of our artists and of others, and we now sell them in the Graphics Gallery and through a print of the month club. We have also extended our range of clients by exhibiting at international art fairs. They are extremely time-consuming to set up and organise and sometimes we barely break even. But they are absolutely necessary, from a PR and marketing point of view.

Another source of expansion has been the corporate art market - companies buying paintings for their offices. Despite the recession it has improved in recent years as companies have built up their collections, and has helped to take up some of the falling demand among individual collectors; though we've found individuals coming back quite strongly this year.

Why have we survived where others have failed? I think partly because we have placed a strong emphasis on running the gallery as a business. We have a stockbroker, an accountant and two bankers - one of them Sir Kit McMahon - on the board.

We have also taken advantage of the BES scheme to allow us to expand with cheap money - we raised pounds 500,000 in 1990 which was used to get Flowers East going and are currently raising another pounds 750,000. Investors are warned that they will not get any dividends during the five years of the BES investment. But they can see from our prospectus that we are expanding rapidly, and, recession aside, working profitably.

(Photographs omitted)