Jan. 29, 2009 - Writing the Financial Policy

   Writing An Association Financial Policy (Reprint)


By Judith Lindenau, CAE, RCE
May 30, 2003


Many AE's spend a great deal of time writing and revising association
personnel manuals, and checking for the complicated compliance issues
that surround this subject area.  Associations spend significant
resources on legal opinions and frequent updates to this high profile
area of association management, even though significantly few of us have
more than a dozen employees-a small number of positions by the standards
of most businesses.

However, no single policy area is more important to an association's
long-term success than the development of a financial policy and its
acceptance by the organization's leadership and staff.  A financial
policy addresses not only the governance issues associated with an
association's assets and liabilities, but also it identifies strategic
goals and objectives and translates these into daily action.  A
financial policy assures "that over time an association will put its
money where its mouth is."

Contents of a financial policy. A policy is a distinct document,
separate from the association's bylaws or charter.  Policies contain the
action expectations of the group, the specific 'how-tos' of the more
general statements of the bylaws. If the bylaws state that the
association will collect annual dues, the policies will describe
amounts, deadlines, and penalties. Policies are more easily modified
than are by-laws, and they should be reviewed annually by leadership and
staff and kept current.  But no less than by-laws, policies represent a
written understanding between members, leaders, and staff regarding
practices of the association.

Here are some areas that an association financial policy should contain:

a.      General organizational operations.  What is the corporate
structure? What is the fiscal year? What are the general financial
responsibilities of the treasurer, staff, and other key players in the
association structure?  
b.      Dues.  Amounts and collection procedures.  Penalties for late
payment.
c.      Cash Receipt and Disbursement Policies. Who pays bills?  When?
Who signs checks? Credit policies and late charges?
d.      Checking, Savings, and Investment Accounts.  Where are they
maintained?  Who can add or withdraw funds, or make changes to the
investments?  Who signs checks?
e.      Budget. Who develops the budget? Who reviews and/or approves it?
What is the timeframe? What types of budgets does the association
expect? (zero-based, programmatic, capital budgets?).  
f.      Reserves. What is the association's policy regarding amounts and
types of reserves?  Is depreciation funded? Is there a percentage of the
budget allocated to general reserves-for instance, an amount equal to
50% of the annual operating budget?  Some common reserve funds are
'rainy day', legal liability, research and development, equipment and
software acquisition, building maintenance or acquisition. How should
the association fund these reserves?  (Direct contribution as a budgeted
line item? Percent of dues? Allocation of a certain type of income?)
What limitations are there in approving expenditures from any of these
funds?
g.      Employees.  What is the association's financial commitment to
its employee program (not to specific employees). Does it provide
insurance? Pension plans?  Certainly specifics of these programs can be
examined more closely in the personnel manual, but general financial
obligations to the personnel program should be articulated here.
h.      Association Operational Expenses.  Here the financial policies
are stated which relate to expense reimbursements for leadership and
staff, financial commitments to ongoing programs such as scholarship
funds or charitable programs which last over a period of time,
association insurance coverage, honoraria for association staff or
leadership, Board or other leadership position reimbursements, other
special paid positions. What is the procedure for committees to gain
approval for funds for programs?
i.      Non-Dues Income. What is the target percentage of the
Association's income that is not from annual dues?  Particularly now,
associations are looking at developing alternative income, and need to
develop targeted specific goals.
j.      Financial audit procedures. How often is a full audit performed,
as opposed to a review? What are the accountability expectations and
reporting procedures to which staff and leadership are held?

The key point in all of this is that the leadership and staff have a
written agreement by which financial activities are addressed, and that
these are in writing and consistently performed.  An organization that
has made this kind of advanced preparation and understanding will
operate with a greater level of consistency actions and open
communication than one that is constantly re-inventing itself in
reaction to each new event.

It is important, too, to make sure that the leadership and staff is
informed of these policies. This education is by necessity ongoing: the
association policy manual should be reviewed and readopted annually, and
brought to the attention of each new Board of Directors and leadership
team.  In addition, an association may wish to consider the
establishment of some standing committees, preferably with longer terms
of service in order to ensure consistency of philosophy.
Budget/Finance, Investment, and Policy Review are a few possibilities
where members can make valuable contributions to the financial
management and encourage a system of checks and balances.  In addition,
an organization should periodically revise its overall financial plan to
keep in sync with its changing strategies and assure its membership that
the financial management is thoughtful, reasoned, and consistent.



References:

Financial Operations Checklist.  Lindenau, Stinton. http://www.judithlindenau.com/financial_checklist.pdf

Sample  association financial statement: http://www.wla.org/finance.pdf
        
http://www.asee.org/welcome/financial.cfm


Management Guide for Real Estate Associations. Judith Lindenau.
International Real Property Foundation, 2002.

Jan. 16, 2009 - Association Straight Talk

On December 30, 2008, Inman News published a shocking statement, one that seemed to go unnoticed and unremarked by the organized real estate community. The quote: “The number of Realtors in America is almost certain to drop by 20 percent or more by 2010, a poll of Inman News readers suggest, with part-time agents among the most threatened by the market shakeout.”

Over the years there have been many such dire predictions (and, I must admit, mine have been among them), but in the face of all of us doom/gloom specialists NAR gleefully announced a million members and speculated on the certainty of arriving at 1.3 million within two years.

So, I hunkered down and brushed the black cloud away from my head.

But this latest Inman projection isn't misguided pessimism: over 90 % of the Inman survey respondents said that a 20 % membership loss is the bare minimum we can expect. Of those responses, almost 40% suggest that a 35 % membership loss is a more realistic projection. So don't accuse me of being a lone Joe Btfsplk: we are talking about a widely-held projection!

Ok, you say, so what's wrong with that? NAR should have been a little embarrassed about those one million members anyway, instead of bragging about them. Inman reported that one survey respondent said, "We (Realtors) need a decrease of at least 50 percent, but we also need new requirements for entry."

Well, let me put on my association manager hat. What we are talking about here is not an increase in the quality of practitioners and the skill level and credibility of those who remain in business—the issue really is our association core income! What this Inman report means to the Realtor association is an imminent decrease in dues income of anywhere between 20-35% by the time we collect our 2010 assessments!

For most associations, this is huge. Imagine a cut in your personal paycheck of 25%--how would you handle it? Quit feeding the kids? Take a second job? Blow through your savings? Sell off the family car? These are the kinds of questions I firmly believe we as association managers and leadership are faced with.

Add to that the change in membership demographics that will result from this drastic drop in population. In the past, we've all lamented the number of 'part-timers' and dabblers in real estate while at the same time happily collecting their dues and catering to their needs. We've designed expensive MLS systems for members who have no motivation to acquire the tools of the trade and learn how to use them effectively and we've continued expensive practices such as printed newsletters, magazines, and forms in deference to the older members who proudly proclaim their neo-Luddism. We've contented ourselves with entry-level education and continuing membership requirements with no substantive value to compensate for the high cost of administering such programs. Instead of providing tools and services for a professional community, we've spent a lot of resources on making real estate a contest for producers and an awards program for the leadership hoop-jumpers. And we've contented ourselves with the unrelenting optimism of those who are paid lavishly to disperse the black economic realities that others seem to see more clearly.

So, what's the answer?

I don't think there are any easy answers, frankly. But we will not save ourselves by doing more of the same things we've always done: if we are going to help our associations survive in a time of economic bleakness and massive industry change, then we need a massive re-invention. As association managers and responsible leaders we must do more than apply fresh lipstick: we need to conduct a total makeover. We must begin by examining our assumptions of purpose and our tradition of operational and governance philosophy. We must look at the industry we serve with a critical eye which is able to distinguish what's really happening in today's world. And we must share our thoughts with each other that we all may grow and become confident managers and leaders in a new world.

What I am proposing is an online discussion group. We already have RealTalk, and MLSTalk, and AETalk: now what we need is AssociationStraightTalk. This won't be a group for the faint-hearted and the traditionalists—what we need is a no-holds-barred discussion of the management leadership and skills needed in this time of industry crisis and a sharing of insight and ideas about the future.

I'd like this to be a safe haven for these kinds of discussions, too. To that end, there'll be some control over the list—not with the idea of discouraging meaningful discussion but with the goal of encouraging freedom of expression. If you're interested in this concept, please contact me and we'll discuss your part in AssociationStraightTalk. Send me a subscribe request to Judith@judithlindenau.com Do not send a Reply to this AETalk message as it will be sent back to the list and not to me.