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Better Budget Smarts for Boards

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Most volunteer leaders aren’t CPAs. But when you present your association’s finances clearly—and with just enough detail—you can help them make budget-savvy decisions.

As chief financial officer of the New Jersey Society of Certified Public Accountants, Gordon Smith knows he’ll be interacting with board members who understand numbers. But he still approaches sharing budget information with the board carefully.

“Their finance and accounting knowledge is second to none,” Smith said, “but they may not be too knowledgeable about association finance.”

Smith, like a lot of association finance pros, addresses that issue by taking a multilayered approach to preparing budget presentations. NJCPA’s finance committee—and the treasurer in particular—works with him to develop a complete budget. From there, the full board gets an executive summary with “the really high-level points that, from a leadership perspective, indicate what’s really driving the budget.”

Associations can differ, though, on what those high-level presentations look like. Kristen Merrifield, CAE, CEO of the Alliance of Arizona Nonprofits (AAN), presents her board with a two-page “budget narrative” to accompany annual budgets. This helps board members who aren’t necessarily finance professionals and want more than the numbers. But it also provides context regarding trends across multiple years, as well as orientation for new board members.

“The notes explain why we ended up where we’re at in 2021, why it looks different, and what we’re thinking about for 2022,” she said. “That’s helpful because moving quickly between late-stage growth and maturity in terms of life-cycle stage.”

Providing that kind of context is crucial, says A. Michael Gellman, CPA, founding principal partner of Fiscal Strategies 4 Nonprofits. “Looking at just one budget year, you can’t tell if an organization is healthy or not,” he said.

Getting Oriented

Solid orientation in financial terms and recent budget trends is essential—especially during the COVID-19 pandemic, as boards have been asked to make consequential decisions about budgets, staffing, and office space.

Linda Caradine-Poinsett, CEO of the American College of Prosthodontists, says she makes sure all board members are well-schooled on financial terms and the elements of a balance sheet.

“A number of board members thought that you should change the budget whenever the finances changed, so we had to help them understand that the budget doesn’t change—it’s what the board approved,” she said. That understanding made it easier for her to raise a discussion in the past year about moving ACP to a smaller office space as more employees shifted to remote work.

It’s generally helpful to make sure board members know about serious headwinds as soon as possible. In other words, don’t save those for the board meeting.

Similarly, Merrifield was recently able to have a discussion with AAN’s board about approving a budget that showed a deficit rather than adopting a budget that laid out aggressive goals but risked staff burnout.

“A negative net-income budget is a tough thing for some board members to swallow,” she said. “But it doesn’t necessarily mean the organization is losing money or not growing. We instead put realistic goals in there, to where the team can feel like they’re still making progress.”

It’s generally helpful to make sure board members know about serious headwinds as soon as possible, Gellman says. In other words, don’t save those for the board meeting. “You’ll want to be able to say, ‘Cash is tight. We’re thinking we might need to make an outside-the-budget draw against operating reserves,’ without people saying, ‘When did this come up?’”

Cultivating Teamwork

In keeping with that, leaders agree that it’s important for association staff to cultivate both an engaged treasurer and other champions within the board who are committed to understanding and communicating budget issues. Ray Bert, vice president at the association management company Capital Association Management, says he works directly with one client that had previously treated the treasurer’s seat as a largely ceremonial role—until it became clear that budget matters weren’t clearly understood and communicated.

“We used to occasionally get lost in the weeds, but the treasurer seeing and approving every expense coming through has largely eliminated that,” he said.

Similarly, Caradine-Poinsett works on budget preparation with the association’s treasurer and director of finance. That allows the treasurer to lead a discussion with peers while both board and staff are clear on the numbers.

“We review what highlights are going to be shared with the board,” she said. This “gives us a chance to understand how the I’s are dotted and the T’s are crossed.”

Mark Athitakis

Mark Athitakis, a contributing editor for Associations Now, has written on nonprofits, the arts, and leadership for a variety of publications. He is a coauthor of The Dumbest Moments in Business History and hopes you never qualify for the sequel.

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