4 Best Practices for Association Financial Management

As an association leader, member engagement is likely one of your top priorities. After all, serving your members’ professional needs to promote industry advancement is a major reason your organization exists.

Effective financial management practices are essential for your association to achieve its goals. By correctly handling your finances, your organization can plan for growth and allocate resources in a way that leads to increased member engagement and satisfaction. Your association management company (AMC) is your partner in creating this critical element of operational excellence.

To help you improve your association’s financial management strategy, here are four best practices management must implement:

1. Diversify Your Revenue Streams
2. Create an Annual Operating Budget
3. Understand Your Financial Statements
4. Establish Financial Policies and Procedures

Association financial management is a unique beast to tackle. Not only does your association have to handle many different types of revenue and expense allocations, but you also need to ensure compliance with regulatory requirements for association fundraising and spending. Let’s dive in!

1. Diversify Your Revenue Streams

Many associations focus on membership dues as their main revenue source, and with good reason. You can customize your membership model to your organization’s needs by implementing a tiered membership model, the funding they provide can be used to cover a variety of expenses, and they’re relatively reliable.

However, diversifying your revenue streams improves financial sustainability by ensuring your organization doesn’t rely on a single income source. Some popular sources of non-dues revenue you can incorporate into your strategy include:

• Grants. Many different organizations offer grants to associations, including government entities, corporations, and private and community foundations. Grants can help fund major initiatives at your organization, such as building projects or launching new programs. However, they’re often competitive, so you’ll need to write a standout proposal to secure funding.
  
  
• Events. Events like conferences offer several opportunities to bring in revenue, including attendance fees; sponsorship, exhibitor, and merchandise sales; continuing education options; and certifications. Approach your event planning process strategically so you can organize an event that provides value for members.
  
  
• Online courses. In addition to conferences, online courses are a great way to add value to association members’ experiences and help them earn certifications or continuing education credits. You can charge a flat rate for each course or adjust the fees for each membership tier.
  
  
• Sponsorships. Businesses of all sizes often partner with associations to contribute financially, provide in-kind donations of goods and services, or take advantage of exhibitor opportunities during events. According to Double the Donation, the most effective sponsorships are mutually beneficial. This could mean that in exchange for a business’s support, your organization will spread the word about them to your members.

As your association adds revenue streams to your strategy, focus on securing funding that you can bring in year after year. Turn your conferences and workshops into annual events, and work on building lasting relationships with grantmakers and corporate sponsors. The more reliable your revenue, the better you can serve your members over time.

2. Create an Annual Operating Budget

If you’ve organized a budget for your household before, you know that this financial planning tool outlines your revenue and expenses for a given time period. Your association’s annual operating budget has the same function, except on an organizational scale.

Most organizations categorize the revenue side of their operating budget by source and break down their expenses into programming and overhead costs. Programming expenses refer to anything you spend on member services, such as the costs associated with creating job boards and providing continuing education courses. Overhead expenses often include rent, utilities, office equipment purchases, management, and marketing, among other costs.

While you’ll create an operating budget from scratch once a year, Jitasa’s budgeting guide recommends conducting quarterly or monthly budget reviews as well to keep your association’s spending and revenue generation on track. It’s also helpful to budget for a revenue surplus as often as possible. This way, you’ll still have enough funding in case some costs are higher than predicted or a revenue source falls through, and you can use the positive net revenue  to build sustainability for your organization. As they say, nonprofit is a tax status, not a financial strategy! 

3. Understand Your Financial Statements

In addition to your operating budget, your association’s financial statements are the most important documents for effectively managing funding. Each statement organizes data in a different way to provide unique insights into your organization’s financial health.

The three major financial statements associations compile are the:

• Statement of activities or income statement. This document allows your association to review your annual revenue and expenses at the end of each fiscal year. You can then compare your actual revenue and expenses to your predictions from the beginning of the year and use the data to inform next year’s budget.
  
  
• Statement of financial position or balance sheet. This statement provides a snapshot of your organization’s financial situation by breaking down your assets (what your organization owns) and liabilities (what your organization owes). It’s especially useful in planning for growth—your association needs to take some risks to grow, and analyzing your assets and liabilities is key for determining whether you can handle those risks while covering all essential expenses.
  
  
• Statement of cash flows. This document shows how funding moves in and out of your association by summarizing the cash flows from operating, investing, and financing activities. It provides insight into your organization’s spending habits and prevents overdrafting from your various accounts. 

Besides informing internal decision-making processes, compiling these financial statements is also essential for your association to comply with the Generally Accepted Accounting Principles (GAAP). These guidelines ensure consistency in financial reporting for all types of organizations, including associations.

4. Establish Financial Policies and Procedures

One more important document that your association should have on hand to inform your financial management activities is a handbook of policies and procedures. This handbook will serve as a reference for everyone at your organization to ensure they know how to handle its funding correctly.

Some of the policies and procedures you should detail in this document include your:

• Expense reimbursement policy, which explains when and how you’ll reimburse your staff and volunteers if they spend their personal money on behalf of your organization.
  
  
• Gift acceptance policy, which specifies the types of contributions—both financial and in-kind—that your association can and can’t accept.
  
  
• Conflict of interest policy, which helps prevent your organization’s leaders and board members from making decisions that could be influenced by outside interests.
  
  
• Internal controls, or procedures designed to ensure accuracy in your association’s financial reporting and avoid fraud. For instance, many organizations require two signatures on checks over a certain amount to help catch mistakes before they happen. Accredited association management companies are required to document and adhere to internal controls in order to maintain accreditation through the AMC Institute.

Having well-established financial policies and procedures allows your association to manage risks and safeguard your finances. Additionally, these guidelines promote accountability in association management, helping to improve your reputation.

Being transparent about how your association manages its finances is critical for retaining members because it affects their trust and confidence. If you and your management partner demonstrate and document that you’re allocating both membership dues and non-dues revenue effectively, members are more likely to continue supporting and engaging with your organization long-term.