With talk of recession ahead, many associations are wondering if they are prepared. Two experts say financial forecasting can help your organization be nimble enough to withstand tempestuous times.
Anyone following financial news has heard the dreaded R-word for much of the last year: recession. While worries of an economic downturn continue to percolate in the financial sector, others contend the economy could continue to hum along. Who should be believed, and how does one plan for the future?
If you’re an association, it’s all about being agile, say two experts who will lead the preconference session, “Financial Flexibility—How to Plan in an Ever-changing Landscape,” at ASAE’s Associations @ Work Conference next week.
“Right now, we are in a turbulent, fast-paced time,” said Paul Parks, CPA, CGMA, director of management accounting at the Association of International Certified Professional Accountants. “We have to have a forward-looking perspective.”
Parks will lead the session alongside Lisa Stover, CPA, CGMA, CAE, principal at CliftonLarsonAllen LLP. The two say it’s important for associations to forecast what they think will happen, so that they can plan ahead. While a financial forecast is similar to a budget, there are some key differences.
“A budget might be a target,” Parks said. “The forecast is what we think will happen. You set the target, but things change. You are constantly re-evaluating.”
Stover added another important difference between budgets and forecasts. “The budget is more of a rule,” Stover said. “They have to follow this rule. This is how much the board can spend. A forecast is predictive. What is our outlook looking like? We know if there is an opportunity, we can jump on it. Or, if we need to tighten our belts, we can do that a lot earlier.”
A good forecast sets the association up to act with intent. “Instead of reacting to issues, you are constantly forecasting and looking at issues,” Parks said. “You are able to see some things before they happen.”
Parks and Stover said forecasts typically go out 12 to 18 months. To create one, associations need to assess both outside financial factors and internal plans. For example, changes to your meetings could have unintended consequences. “You change the location of the conference, and the conference values could decline,” Stover said. “You think you’re adding more value by adding a regional conference, but it tanks your annual conference attendance.”
Another item that will help with your forecasting: membership data. “Organizations are seeing a lot of uncertainty around their membership numbers,” Stover said. “How do you diversify revenue streams?”
When looking ahead, the key is to determine how various factors might affect your association. “We are trying to get ahead of that curve, and we need to understand what is happening,” Parks said. “The more you do it, the better you get at it.”
For forecasts to be useful, data must be collected from numerous departments at the association. “This is not about the finance person sitting in the back room and not engaging with anyone else,” Parks said. “Their role is to be the business partner, to be a catalyst, to build the planning framework.”
Once the framework is built, people have to want to use it. “I think it helps to have buy-in from leadership and from the board,” Stover said. “If you go through this effort to make a model and no one is willing to look at it, it doesn’t work. It is not something that happens in the finance silo. Having people say, ‘Yes, this is something that is important’ is beneficial.”
How does your association prepare itself for a potentially turbulent future? Tell us in the comments.