Saving for that rainy day: budgeting your association's reserves

Guest Blogger: Denise Clark, Vice President of Finance/Operations, AMG


All non profit organizations should have reserves. But there is not common agreement as to how large a reserve fund should be. Often, there is not a good understanding among board members and officers as to the value or purpose of reserves. Reserves are unrestricted net assets, excluding property. Reserves can be divided into various funds given the needs of the association, such as a general reserve fund, a building reserve fund, and other funds the association needs to earmark for later use.

In my twenty-five years in non profit finance and accounting, the "rule of thumb" I've most often heard tossed about was "keep 50 percent of your annual budget in reserves." Most associations are lucky to reach that goal, given that the pressure to spend money is always greater than the desire to save it. But there's nothing magical about a half year’s worth of cash.
Reserves serve three vital purposes:

1. They enable the association to survive a storm, such as a political schism that splits the association, a disastrous conference, a nasty lawsuit, or a bad policy decision on programming, all of which can happen regardless of your efforts to head it off.

2. They enable the association to take advantage of unique opportunities that arise: launching a new program with high start-up costs and a long-term pay off, filing a lawsuit to defend the industry or profession, or a special lobbying effort requiring outside advocacy.

3. They provide ongoing non-dues, investment income that reduces dependence on dues income and conference income.

If your reserves are under the “half year of your annual budget” level, spending any reserves should be approached with extreme skepticism.

There are two ways to build your reserve funds. Commit each year to an expense line in your G&A budget entitled “Commitment to reserves” or budget each year for excess revenue over expense which then goes to your reserve fund.

No volunteer leader or staff member should have authority to make investment decisions. The executive committee, treasurer, finance committee, and/or board should approve the investment strategy suggested by the organization’s independent investment advisor. The advisor should present the board with a summary of the year’s activities and future projections at least once a year.

Consider these guidelines when ensuring that you have thought through the key elements that are important to include in any well crafted association reserve policy.

As Vice President of Finance, Denise Clark has more then 20 years of finance and accounting experience encompassing both for profit and not for profit organizations. She is responsible for managing the finance and accounting operations of AMG and the accurate and timely delivery of financial information each month to over 18 different corporate entities. Denise works with numerous client association executives and volunteer leaders to develop and implement budgets, investment policies and board financial policies.

Changes in 2009 Shaping Your Non-Profit in 2010

This year, board members and staff members find themselves working much harder in an effort to achieve results that might even come close to those reached in 2008. The current economic realities of 2009 have really thrown a curve ball at the nonprofit world, not to mention everyone else. And 2010 budget season is right around the corner.

Given that budgets for next year are being developed now, how will you make sure your organization makes the right projections and decisions? I suggest you need to be more creative, more effective and go back to the mission and goals of your organization. Is your mission to drive more dollars to the bottom line of your member companies or is it to connect business to business? Is it to enhance the professional careers of your members or to advocate for the needs of your industry with government? Everything you do should connect back to your primary mission. Especially this year, you need to look at the services and benefits currently being delivered in a fresh, new light. Be inventive in finding original ways to effectively achieve your mission. Taking a risk might just produce your biggest pay off yet.

One of AMG’s clients, the American Institute for International Steel (AIIS), was looking for a boost to position and create brand awareness for the organization among a broader target audience. By focusing on the AIIS mission, the missing piece was discovered and a new event was conceived. . We helped them launch the Critical Commodities Conference to promote networking, communication, and education within the steel industry. The CCC created a presence for AIIS in the commodities community as well as within the international steel industry and provided a springboard for expanding membership categories to generate additional revenue.

In addition to creating new products and benefits, which can be risky in this economic climate, here are some things I think could help your organization weather this difficult economic season.

1. Use technology to bring people “together.” Get creative with meetings and conferences. Offer webinars or video conferences so all members can benefit from the education being provided. Filming and streaming your conference can help people feel as though they were there without leaving their office. Or you may even create a virtual meeting with extended sponsorship opportunities to complement your conference.

2. Leaders should expect a reduction of approximately 30 percent in meeting revenue and adjust mid-year budget projections to reflect the trends in lower meeting attendance, sponsorships and exhibit sales this year. The board must be prepared for, and made aware of, this projected decline.

3. Check your hotel contracts and release rooms from the organization’s room block to minimize penalties.

4. Explore expense cuts. For example, reduce printing by producing electronic board books. Why not reduce meeting expenses by starting meetings later in the morning and not offering breakfast. Or how about providing a Web link to attendees for them to download presentations prior to the conference and save on printing agendas or costly handbooks. You may even consider consolidating the number of speakers or limiting the number of staff that travel to an event unless there is a clear ROI.

5. Don’t stop marketing. This is definitely not a line item you want to cut these days. Instead, create new messages and new ways to reach people. Look at telemarketing, social media, faxing and cross-promotions…all ways to reach your members and target audiences. Social networking is great for members but also great for the organization. It’s a no-cost way for members to find each other and keep in touch while your nonprofit or event enjoys word-of-mouth marketing and promotion. With today’s social networking tools, staying in touch is easier than ever. Create a group or a page for your association on sites like Facebook, LinkedIn or Ning so you can be viewed as a resource and a central “meeting” place for members. It’s a great way to add benefits to your organization membership and meetings with little investment.

6. Joining an Association Management Company can be a great way to reduce costs by up to 30 percent while drastically increasing your productivity. The benefits of in-house IT and graphic design services, meetings management, communications, and financial staff can be a huge benefit both time wise and financially.

In today’s economic climate, frugality and modified expectations are no longer options. They have become a necessity. But being frugal and revising projections doesn’t mean being cheap. It means working harder and smarter to achieve the desired results. Get creative, take risks, figure out what your members really want from their organization and give it to them! 2009 may have taken the world by surprise but we must be ready for 2010.