4 Best Practices for Association Financial Management

Association financial management is a unique beast. 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 fundraising and spending for tax-exempt organizations.

However, effective financial management is essential for your association to achieve its goals. By correctly handling funding, your organization can plan for growth and use its resources to boost member engagement, satisfaction, and retention.

While you don’t have to be an accountant to run an association, you should have at least a basic understanding of your organization’s financial situation. In this guide, we’ll lay that foundation by discussing four best practices for association financial management. Let’s get started!

1. Diversify Your Revenue Streams

Most exempt organizations (nonprofits, schools, faith-based organizations, etc.) bring in funding from various sources to boost their financial stability. Associations are no exception—while membership dues may be your revenue bread and butter, you’ll build a stronger foundation for growth and resilience by diversifying your funding.

Consider how you can incorporate all five of the major nonprofit revenue streams into your association’s funding model. These include:

• Individual donations. This category encompasses monetary gifts of all sizes (small, mid-level, and major) as well as in-kind donations of goods, services, and assets like stocks or cryptocurrency.
• Corporate philanthropy. This refers to any contributions businesses make to your association. Sponsorships are especially common among associations (which, according to Double the Donation, can include financial, in-kind, or media support). However, you may also be able to receive employer matching gifts and volunteer grants.
• Earned income. This type of revenue is particularly important for associations, as it includes memberships, merchandise sales, and fees for services provided, such as online courses or conference registrations.
• Investments. Although investing isn’t commonly thought of as an association revenue stream, earning interest from low-risk vehicles like mutual funds, bonds, and treasury bills is a great way to steward and grow your organization’s reserve funds.
• Grants. Foundation and government grants can provide critical funding for your association’s most important projects and initiatives. However, not all nonprofit grants are open to associations, and you’ll need to write standout proposals to secure the ones you’re eligible for.

As your association adds revenue sources to its funding model, focus on securing funding that you can rely on long-term. Turn conferences into annual events, prioritize member retention, and build lasting relationships with grantmakers and corporate sponsors so you can continue to benefit from their support over time.

2. Create an Annual Operating Budget

Your association’s operating budget is its master financial plan, outlining all of its projected revenue and expenses for a given year. While you’ll create this document from scratch once a year, it’s essential to check in with it regularly to ensure your organization’s spending and fundraising stay on track and make adjustments as needed.

According to Jitasa’s budgeting guide, the most effective way to organize the revenue side of your operating budget is according to the funding streams mentioned above. For expenses, categorize each expenditure based on how it furthers your association’s mission (this is known as functional expense categorization). The three categories you should use are as follows:

• Program costs are directly related to your association’s mission-related initiatives—i.e., member services like continuing education and job boards, professional events, or opportunities to make a difference in the wider community.
• Administrative costs are necessary to run your organization day-to-day and include expenses like staff compensation, utility bills, insurance, and office equipment purchases.
• Fundraising costs are the upfront expenses associated with revenue-generating activities, such as marketing, investing in specialized software, or planning events specifically geared toward fundraising (galas, auctions, etc.).

A common misconception around association budgeting is that because your organization can’t turn a profit by definition, your budget has to break even every year. In reality, it’s legal—and highly beneficial!—for your total projected revenue to exceed your total expenses. Along with revenue diversification, budgeting for a surplus helps promote financial stability and provides more opportunities for your organization to save for the future.

3. Understand Your Financial Statements

Alongside your operating budget, your association’s financial statements are critical for effectively managing funding. Each statement summarizes data in a unique way to provide actionable insights into your organization’s financial health.

Associations typically create the four core nonprofit financial statements that other exempt organizations do. Here is a quick overview of these reports and what they include:

• Statement of activities. The nonprofit parallel to the for-profit income statement, this report breaks down your association’s annual revenue, expenses, and change in net assets to inform future budgeting decisions.
• Statement of financial position. Also known as a balance sheet, this statement provides a snapshot of your organization’s financial health and potential for growth by categorizing its assets, liabilities, and net assets.
• Statement of cash flows. This report shows how cash moves in and out of your association through operating, investing, and financing activities to help keep your spending and fundraising on track (which is why most organizations compile it monthly instead of annually like the other statements).
• Statement of functional expenses. The one financial statement unique to exempt organizations, this report organizes your expenditures according to the aforementioned functional expense categories so you can see how your spending furthers your mission.

Besides informing internal decision-making processes, compiling these financial statements is essential for your association to comply with regulations like the Generally Accepted Accounting Principles (GAAP). They also help you fill out your organization’s annual tax returns and communicate transparently about your finances to members and stakeholders.

4. Establish Financial Policies & Procedures

One more useful document that your association should create to support strong financial management 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 funding correctly in their roles.

Some key guidelines to feature in this handbook include the following:

• Gift acceptance policy, which specifies the types of contributions (both monetary and in-kind) that your association can and can’t accept, as well as the conditions under which you can receive these gifts.
• Conflict of interest policy, which helps prevent your association’s leaders and board members from making decisions that could be influenced by personal or professional interests.
• Expense reimbursement policy, which explains when and how you’ll reimburse employees and volunteers if they spend their personal money on behalf of your organization.
• Staff compensation policy, which outlines how you’ll set and adjust compensation for all of your employees—including both direct (salaries and bonuses) and indirect aspects (healthcare and retirement benefits, paid time off, professional development opportunities, etc.).

Having well-established financial policies and procedures allows your association to manage risks and safeguard your finances more effectively. Additionally, these guidelines promote accountability in association management, which can boost your reputation.

Being transparent about how your association manages its finances is critical for building strong relationships with members, stakeholders, and the public. If you consistently demonstrate that you use their contributions to further your association’s mission, your community is more likely to trust your organization and continue supporting it long-term.