The pandemic created uncertainty for association finances. Budgets were often wildly off pace from the pandemic reality, and many organizations scrambled to figure out what to do. But scrambling doesn’t have to be a part of the equation if associations communicate finance policies, forecast, and stay flexible.
Over the past year, COVID-19 forced us to adapt to unprecedented challenges. However, creating practices that make your association agile and ready to respond can mitigate potential negative impacts to its financial health. Being agile starts with solid communication, trust, and empowerment from your board.
The association industry is likely to continue to see disruptive events over short periods of time due to rapidly evolving technologies and overall economic fluctuations. To be future ready and agile, you cannot be bogged down with archaic financial policies.
My organization, ABET, Inc., was ready to respond to COVID-19 due to our practices of open communication, transparency, and flexible financial practices.
Even the best financial policies and practices will be unsuccessful if your association’s board does not understand them or how you implement them. During every finance committee meeting, our policies are shared and discussed. I share a financial dashboard with our board each quarter and present a risk assessment every few years. I communicate how I assess risks and categorize what my findings—from certain to highly unlikely to happen. I ensure they understand our practice is to be proactive rather than reactive.
Consistent forecasting reinforces that we are financial professionals, not fortune tellers. If your loss is not due to poor management, there should be no shame in sharing the circumstances, and if it is due to poor management, then a very different conversation must take place.
Communicating regularly with our board builds trust and confidence, which allows us to plan strategically and implement the following financial practices.
Budget Versus Forecast
Each year, ABET creates a new budget. Our managers review actual and historical performance, as well as project plans for the coming year. This final budget is sent to our board for approval and is then adopted.
Our goal is to stick to the approved budget. This might mean getting creative, but it also means being agile since challenges might come on short notice. For example, like most associations last year, we had to cancel our annual conference. We could have requested an amended budget to reflect the impact of this, but instead we updated and presented a new year-end forecast. This forecast illustrated the financial impact of not hosting the event after reallocating funds to support various virtual events. It also included an estimate of what we might be charged in hotel cancellation fees, while displaying the actual-to-budgeted variances. Our staff and volunteers worked hard to eliminate as much of the actual-to-budget variance as possible.
This approach was available because our board was accustomed to receiving forecasts during normal business operations. We have always been transparent about any changes from budget-to-actual results. If your association is not currently taking the time to forecast and share these results frequently with your board, I highly recommend you start: the law of “no surprises” is key to building trust, partnerships, and confidence.
When to Amend
So, when do you go to your board for an amended budget? I recommend you only do this once a year, at most, regardless of the circumstances and only when extremely necessary.
Necessary scenarios might include:
- Needing a material amount of additional funding for a current or new project.
- Finding zero loss mitigation options.
- Wanting to pull from reserves to cover losses. (This should only be done if it is certain to be a one-time occurrence.)
- Eliminating a business segment or revenue source.
- Adding a new business segment or reorganization of operations during a fiscal year.
When creating a new budget, keep in mind the concept of materiality. If you are forecasting a loss when you budgeted a contribution to reserves, explain it in a forecast. Submitting a new budget every time an imminent loss materializes can become burdensome and weaken confidence over time. Consistent forecasting reinforces that we are financial professionals, not fortune tellers. If your loss is not due to poor management, there should be no shame in sharing the circumstances, and if it is due to poor management, then a very different conversation must take place.
If your current financial policies force you to create multiple budgets based on anticipated variances, I recommend you change these policies to be more flexible and realistic.
Creating a monthly year-end forecast and continually evaluating trends has made a world of difference for ABET. For example, we saw the virtual events push happening years ago. Sharing these forecasts with our board members enabled them to function as strategic partners with staff, and we were ready to jump into gear without multiple hours of budget presentations. We had already done the research and converted some of our face-to-face events to a virtual format prior to COVID-19. Because of this, we successfully launched more virtual events in response to the pandemic.
Following these principles has allowed our financial team to build trust, partnerships, and confidence with our board members. Consider putting them into place at your association to increase agility and maintain financial health in uncertain times.