3 Ways to Strengthen Your Association’s Financial Health
While the longevity of your association depends on a multitude of different elements, the way the organization manages finances probably has the largest impact.
An association could have sky-high retention rates and more sponsors and non-dues revenue than they can shake a stick at, but if they don’t regularly assess the financial health of the association, minor issues can grow to become very expensive problems.
Here are three tips your association can implement to strengthen your financial health.
Be Deliberate with Your Budget Decisions
Even if you plan to provide the same member benefits, host the same events, and offer the same programs as you did the prior year, you still shouldn’t just copy and paste last year’s numbers into this year’s budget. This is because there are several external factors over which you have limited or no control that can substantially impact costs.
For example, the venue at which you usually hold your annual conference could announce a considerable year-over-year increase in food/beverage costs or AV rates. Or a large sponsor could decide at the last minute not to renew, leaving you to either find a way to make up for the lost funds or cancel the event/program for that year.
Instead of taking a copy-paste approach to budgeting, try to make more strategic, targeted decisions about your budget. You certainly don’t have to start from scratch each year or evaluate each individual program or activity on a hyper-granular level. However, try to avoid making sweeping increases or decreases across expense and revenue categories. You should also take a data-driven approach by using reporting and analytics dashboards as opposed to basing budgeting decisions on assumptions. Look at prior year revenue and expenditures as a guide to budgeting for the upcoming year.
Being more meticulous about how you allocate funds can help you reduce inefficiencies and better align spending with the overall mission of the organization. It also helps neutralize the “We’ve always done it this way” argument, preventing your association from repeatedly making the same budget mistakes.
Pro Tip: One important factor to analyze when optimizing your budget is the potential impact any proposed budget changes will have on the member experience. Be careful not to sacrifice the quality of the services you provide in the name of saving a few dollars.
Establish a Finance Committee
Many associations (particularly smaller ones without staff) assign all accounting and bookkeeping duties to a treasurer. The advantage of doing this is that it reduces opportunities for there to be “too many cooks in the kitchen” when budget decisions need to be made.
However, assigning all financial responsibility to a single volunteer or staff member can limit an association’s growth potential. A treasurer who is solely responsible for the financial management of the association may simply be too busy with daily operations to identify ways for the organization to be more strategic with its financial planning. Or, if the treasurer does have ideas, he or she may find it difficult to get buy-in from members of the executive board.
If your organization is volunteer-driven, rather than relying exclusively on a treasurer, consider creating a finance committee. A finance committee is a group of individuals, usually composed of board members or other volunteers, who provide oversight of association finances. Typically, the committee has the following duties: - Review financial activity to ensure the association is adhering to the budget - Recommend adjustments to spending and investments to the governing body of the organization based on fund utilization and availability - Establish long-term financial goals and develop strategies to accomplish them - Determine the most efficient ways to financially support association initiatives - Create and enforce internal controls for all financial transactions
For a host of reasons (including lack of volunteers) you are less likely to see a finance committee in a smaller association. Interestingly, it’s associations with smaller budgets that stand to gain the most from having multiple sets of eyes on revenue and expenses. Even if your association is on the smaller side, it’s in the organization’s best interest to pursue the creation of a finance committee. What a finance committee can offer is invaluable in terms of improving the association’s financial health.
Pro Tip: Having appropriate internal controls is critical to transparency and the fiduciary responsibility your members expect. At a minimum, a “segregation of duties” policy should be in place. One example of this policy is that it would require that the person who deposits checks not to be same person who is opening the mail and logging them.
Create Additional Sources of Non-dues Revenue (but Don’t Neglect Dues)
In the past, membership dues made up nearly 100 percent of an association’s overall revenue. Now, associations have a variety of potential revenue sources at their disposal.
Conferences, networking events, and book sales along with certification programs and online continuing education courses are some of the most popular options for non-dues revenue streams. Advertising and sponsorships are also an effective way to bring cash into the association. Do keep in mind that the Unrelated Business Income Tax (UBIT) could be triggered if you are highly successful in your ad and sponsorship sales.
One especially valuable non-dues revenue stream can be an affinity program. An affinity program is a partnership between an association and a company in which the latter offers the association’s members exclusive deals and discounts on the company’s products or services. An exceptional affinity program not only generates a steady revenue flow for your association but it can also help improve member acquisition and retention. (Note that some states do not allow exclusive member benefits for services. However, even when non-members utilize the affinity service, a disbursement is routed to the association.)
As you work to establish additional revenue streams, it’s important not to forget about the most reliable source of income: membership dues. While dues may not account for as much of your revenue as they used to, they’re still an integral part of your cash flow. This means you should always be on the lookout for ways to make paying dues as easy as possible—for example, by offering a recurring payment option.
In a recurring payment model, members are automatically charged for dues at designated intervals, such as monthly, quarterly, or annually on their renewal date. Members don’t have to worry about remembering to pay one huge lump sum, and your association enjoys a more consistent cash flow. Recurring payments can help you weather seasonality by supplementing your revenue during traditionally leaner months.
Financial stability gives associations the freedom to explore new initiatives and discover ways to better serve their members. Make it a goal this year to improve the financial health of your association so you and your members can start reaping the benefits.