Don’t Burn the Furniture, Please
It would be cliché and perhaps too obvious to say that for nonprofits and associations, this year is unlike any other. And yet, here we are. Most of our in-person conferences have been cancelled. Many, if not most, of us are implementing virtual meetings and conferences. Our traditional forms of content delivery and revenue streams have been disrupted.
Many of us are realizing or planning for the significant revenue consequences of these changes. Association Laboratory conducted an excellent survey back in March showing that 72% of responding associations believed at that time that their total annual revenue would decrease in 2020 and more than 27% indicated revenue would also be down in 2021. Financially, this is a difficult year for many associations.
One of the consequences of this decreased revenue is an increased likelihood that associations will have to access their reserves. A recent survey from ASAE shows that just under 80% of responding associations will have to dip into reserves this year. This survey also shows that 6% of responding associations do not have enough reserves to get them through the year.
The cruel reality in 2020 is that those associations with little or no reserves may have no choice but to make really hard decisions in order to sustain themselves. These choices may include deep cuts in staffing and/or deep cuts to programs or services. What is harder to understand are those associations with extensive and strong reserves that nonetheless make deep cuts to staff or services in order to avoid using even a very small slice of these reserves.
Unfortunately, many boards view dipping into reserves as a measure of the management competence of the board or staff. They view dipping into reserves as some sort of ripcord that unleashes a parachute of failure to be used only in emergencies and which should be accompanied by a reasonable amount of shame or judgement.
To these boards with healthy reserves, let me say this: Congratulations on generating strong reserves. Well done. Now, use them. Your reserves are not like a piece of art on your wall—to be observed but not touched. Using your reserves does not mean that you have failed or that your association or nonprofit is dying. Please do not burn the furniture, layoff half of your staff, or hold a bake sale to avoid dipping into reserves. You’re going to need all that stuff, except perhaps the muffins and cakes you were making for the bake sale.
Clearly, associations should not dip into reserves several years in a row solely to support ongoing operations. Doing so is an indication that these associations need additional revenues, fewer expenses, or a change in their market strategy and business plan. But one of the primary functions of reserves is to be there to occasionally use in case of an extraordinary, unusual event, such as COVID-19. Using your reserves to supplement income lost due to the COVID-19 pandemic is common this year among associations and is no cause for shame.
Also, reserves should be viewed as much more than a rainy-day fund. Reserves are where you should be going to fund new products or services, such as a website redesign or learning management system, to help meet your mission. McKinley Partners make a strong point that leading organizations actively use their reserves, rather than simply sitting on them:
“Reserves provide associations with a distinct advantage during times of financial uncertainty or decline. They function as a sort of ‘rainy day fund’ that mitigate risk to the organization. And while it is human nature to focus on protecting assets and minimizing change during times of disruption, we have observed that leading organizations do the opposite.”
Association Forum has a good professional practice statement on reserves in which they advocate that one of the primary functions of reserves should be the “…addition of promising new programs or services.”
Success in associations is like most things; it is a long-term game. It can be measured by any number of things, including volunteer engagement, member satisfaction, and most importantly the degree to which the association meets its mission and makes an impact on its community or profession. One thing is clear: success should not be measured as a series of 1 year thumbs up or thumbs-down judgements based on 1-year net operational revenues or the extent to which you had to dip into reserves.
Dave Bergeson is a vice president of client relations and member of AMC’s Leadership Team.
Be the first to know about the latest articles, news, and events from AMC. Sign up for our emails!