Trimming budgets and stocking reserves might not be the most exciting tasks of an association executive, but they are infinitely important to the financial health and future of an organization.
When the economy tanked in 2008, Todd Mann, then the CEO of the Associated Builders and Contractors, Inc. (ABC), knew his association was going to take a hit. And sure enough, about 10 percent of his members went out of business, and 50 percent of them saw a drastic drop in their income.
“All of a sudden, we saw a huge drop in dues, which we knew was coming,” Mann, who now runs his own nonprofit management firm, said to a room full of association professionals at last week’s Association TRENDS breakfast on finance lessons from 2016 and budgeting and forecasting for 2017.
As a result, Mann had to figure out how to keep the association solvent, while ABC rode out the economic downturn. He managed to do it, and he also learned a few valuable lessons from the experience that he shared with the audience.
Know your members. Since members help fund associations—through their dues and conference registration, among others—it’s in an organization’s interest to get a handle on its members’ financial health. Mann listed a handful of economic indicators that an association can watch in order to keep the pulse on how its members are doing financially, from new home sales to the jobless rate.
Build your reserves. When asked if he could offer a good rule-of-thumb for the amount of reserves, Mann said, “I don’t have a one-size-fits-all yardstick.”
Mann said that economic data enables associations to be “much more certain on how much money to sock away for reserves.” Otherwise, an association is, in essence, choosing an ambiguous amount of reserves—say six months of operating expenses—without any real data to back that amount up.
“It is just not taking a look at members’ financial health, but how long it would take for members to feel a significant pinch if there is a downturn, and how long would that last,” Mann said. “If you look at that now, you have a better way to set a reserve amount and can plan that level now.”
Diversify. In spring 2001, Mann mentioned that one association had just wrapped up its annual tradeshow, from which it derived about 85 percent of its annual revenue. Just a few months later, the September 11 attacks occurred. Mann said the association realized that if it had scheduled a fall tradeshow, when travel was grounded, it would have faced severe financial losses.
Mann suggests that associations diversify their streams of revenue, “so you can afford to take hits.” He says they need more than two sources of revenue, and that no single source of revenue should comprise more than 50 percent of the overall budget.
Get thin now. In some cases, an association might be able to predict when its members will experience an economic hit—and by affiliation—when the association will feel the economic impact. In these cases, Mann recommends trimming the association’s fat, by reducing travel, completing a thorough assessment of the ROI of programs, and even starting the hard practice of eliminating extraneous positions. If you communicate well in advance of layoffs—if you’re open and honest each step of the way—then ending positions, while not fun, can be at the very least decent and dignified.
“Even if there is not an impending drop in revenue, [completing this assessment] is a very worthwhile yearly exercise,” Mann said. “It keeps you on your toes, and you will always be surprised with what you find when you go through the exercise.”
To sum it all up, rainy days aren’t usually too much fun. But if you’ve researched your members, built your reserves based on data and metrics, diversified your revenue streams, and trimmed the fat where you can, you’ll at least stay as dry as possible under your umbrella while you weather the storm.
“You will feel better adding one more degree of certainty to your organization,” Mann said.