An Executive Director's point of view


May 29, 2014: You can't budget hope

"I hope we can meet the membership targets," Board members sometimes say. "I hope we'll reach our registration numbers," they may add.

Well, you can't budget hope. And you shouldn't budget income that has to be hoped for.

When preparing a budget, start with the approved plan for the year. Determine what it will cost to engage in those activities. Then project the amount of income that can REALISTICALLY be expected from various sources.

If projected income is less than expenses, you need to cut some activities. If you decide, instead, to increase budgeted income, how much more will you need to spend to achieve that increase?

Don't say you'll work harder or smarter or better. What will it cost to do that?

Budget what can really be done, not what you "hope" really will be done.

December 15, 2013: Financial article posted

Now you can read the recent financial expertise article in Forum. It's just been posted.

December 09, 2013: It's not just expenses

"...too many financial professionals are excellent with addressing expenses but often don't possess the same passion for addressing revenues," says Max Moses, of Member Media, and a veteran association CEO.

He believes the ability to identify new revenue sources is the most important attribute of an association finance officer.

Find out more about how associations can benefit from the financial expertise of staff and contractors in Forum.

November 12, 2013: Associate members are UBIT

If your association has associate (non-voting) members and they have no representation on the Board of Directors, the IRS considers them customers, not members, and their dues are taxable as unrelated business income (UBIT).

If you only have a small number of associate members, it may not matter. You may be able to balance off the income with expenses, just as you do with advertising or sponsorship.

But it would be a good idea to check with your attorney or accountant to make sure.

May 14, 2013: Always budget a profit

It's surprising how many not-for-profit Board leaders think their associations are not allowed to earn a profit.

Well, there is no prohibition against not-for-profits earning a profit. In fact, they always should and it should be budgeted at the beginning of the year, and not merely consist of whatever might be left over at the end of the year.

The only legal requirement is that the profit (or "surplus," as it is usually called) not be distributed to the Board, employees, or members. The profit stays in the organization (but bonuses can still be paid).

A profit provides a cushion in the event of a drop in dues, program registrations, or anything else, and it provides start-up funds for new projects. It's an association's way of saving money - building a reserve - which is not only prudent but may be necessary to maintain the organization over a long period of time.

Many Board leaders, though, work in government, where they are given an appropriation (which they don't have to raise) and must spend it during that fiscal year. Others work in charitable organizations that are accustomed to grant directives mandating expenditures during a particular time frame.

So, they naturally assume that not-for-profits must operate under those same conditions.

You may have to be forceful when educating Board members about the need to earn a profit and build a reserve. When unexpected income is received, they may want to spend it.

Remind them that it's a bad idea to go out and blow a bonus check.

April 15, 2013: Should free lunch be taxed?

If your association offers free benefits to employees, be sure to tell them if they have to pay taxes on those benefits. The IRS thinks they should.

January 23, 2013: Stolen event receipts

The finance director of the City of Northlake IL (a Chicago suburb) placed $102,000 in cash receipts from a municipal fair in a cardboard box and stashed it under a chair in his locked office one evening.

The next morning, he found the door unlocked and the box empty. Nothing else had been stolen from his office - not even the contents of the petty cash box.

More than a year has passed and the crime has still not been solved.

Message for associations: Always store cash receipts in a secure place.

Not in a box, or a drawer, or a cabinet in your office (not even in a locked drawer or cabinet). Not in a hotel room safe or an office safe that can be picked up and carried away. Not in a container transported with your meeting or expo materials. Not in your briefcase or purse, or coat pocket.

Make arrangements to have cash stored and shipped securely. It not only enables you to comply with legal and insurance regulations - it's just common sense.

August 14, 2012: Obsessive record-keeping

Is it really necessary to copy or scan every single check the association receives for payment?

June 01, 2012: Credit card security

Yes, people who make online purchases do worry about the security of their credit card information.
It should be Board members, but that's not always the case.

Many, many organizational leaders don't know how to read financial statements. And a lot of them would rather not learn how.

Their eyes may turn glassy and their brains freeze when confronted with financial information. They often leave printed financials on conference tables when they leave Board meetings.

But they have to read this stuff. So, here are a few ways you can help them fulfill their fiduciary responsibilities as Board members:

1. Ask Board members what they want to know about the association's finances. Even those with little financial knowledge or interest are likely to have something to say.

2. Craft a financial statement that is easy for them to read and to understand.

3. Highlight the most important information on the statement - literally. Use a highlighter, print different color fonts, use bold lettering, underline, circle, draw arrows, or do whatever is necessary to make it easier for people with little financial education to focus on important data.

4. Patiently explain why accrual accounting is better than cash accounting; how the balance sheet, not the income and expense statement, displays the true financial picture of the organization; and why program expenses are more important than functional expenses. Use everyday language, not accounting lingo.

5. Define terms - at every meeting, if necessary - including deferred revenue, net equity, and amortization. Tell them why membership dues are not considered income in the month they are received but have to be spread equally over all the months for which they apply.

6. Gather together the Board members who understand financial information (if there are any on your Board) and enlist them to help educate their peers. They may be more trusted and respected than staff. Hopefully, the Treasurer will possess a reasonably high level of financial literacy and can lead that effort.

Be aware that associations that file IRS Form 990 are required to share copies of the group's tax return with all Board members. That requirement does not exist for organizations that file form 990-EZ.
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