Recently an AE from a smaller association asked this question: What are some good suggestions about making our association financial statements available to members?
“Well, that’s easy,” you may say. “Just make a copy and give it to ‘em. After all, they are MEMBERS, and have a right to know.”
True enough. But we have all had experiences when the member with a personal agenda uses the financial issue to further a cause and, in the meantime, incite a riot. I have a not-so-fond memory of a very irate member pounding the counter in the front office because we were cutting back on the doughnuts served at the MLS tour.
Reading financial statements takes some training. Board of Directors have tutorials in this art (sometimes at every meeting…) and even then get a little confused about what a balance sheet really means. Often when the dues are going up, members want reassurance that expenses are going down—and they comb the budget worksheet looking for cuts—likely areas are salaries and travel and, yes, even doughnuts at MLS tour. Sometimes even the ply of the toilet paper becomes an issue: think how much money we would save if we bought 2-ply instead of 4-ply in the restrooms!
So one of the things that’s feared when members grab a financial statement is that some hot button will be pushed, and the association will spend a lot of time doing some destructive things that really don’t mean much in light of the real problem. In other words, if your association has lost 45% of its due-paying income, changing the ply of the toilet paper or taking away a few dollars for doughnuts might not contribute much to solving the membership exodus.
So, how do we answer the AE? How do we find a point which provides members with information they want and need, but in a way that presents truth without encouraging counter-productivity?
My own feeling is that the presentation method is the key. Ask yourself, what does the member really want to know about the association. Granted, some care about doughnuts and toilet paper, but most really want the answers to a couple of questions:
1.How’s our bottom line? and
2.Are the association resources being expended carefully and wisely?
So, how do you answer those questions? I suspect it’s not with pages and pages of reports. I think it’s not with elaborate protection of the information (one association I know only lets the members see the financials in the presence of the association CPA. Another says a member must make an appointment so that the accountant and the AE can be present). No wonder members get suspicious that ‘something is up’!
Why not consider publishing the information on your association website, but do so in the form of graphic presentations? Give the information the member needs, but do so in an easily understandable, quickly scanned format. Then, even have a link where the member can create an email in which he/she can ask questions or make comments.
Here’s a couple of representations of budget presentations, these for the US government, and printed in the Washington Post. Perhaps you’ll see what I mean:
This is a representation of the US budget for FY 2008. Notice there's not a mention of dollars, although if you click on the link you'll see that a simple chart gives round numbers for each category. The pie chart answers the question, "So where's my dues dollar going?" (or tax dollars, in this case).
In the same article, the post has a comparison graph comparing FY 2007 and FY 2008:
Again, the graph is informative and answers the question "are you guys spending a lot more money than last year?" and "What the heck are you spending it on?"
Software to create simple graphs is easy to find. Many times your word processing program has graphing ability, or your spreadsheet program will be able to produce graphs and charts. If that’s not the case, go to one of the software aggregators like CNET.com or Tucows.com and search until you find a program to suit your needs and pocketbook.
Then, create some attractive, easy to understand templates and use them regularly to communicate your association financial position to your members. They will have more confidence in your management skills and more trust in the leadership because of the transparency of the information.
In principle, I think members are entitled to know how their dues dollars are being spent, but that's true in general terms. Unless state law or association bylaws permit members to inspect the books, I think it's best to present financials on a high level. I remember a member who argued she was entitled to review the association's credit card statements - that's going too far.
One thing I think is very useful, however, is tracking income and expenses based on business activity. Most accounting software (even QuickBooks) allows you to associate income and expenses with "jobs". And when you are budgeting, you can spread salary and overhead costs across the activities that your staff supports. The result is that you can produde the type of pie-chart you described in your post, including an allocation of the overhead costs.
This is great for your board, too, because it permits them to evaluate programs based on their true cost. The tricky part: figuring out how to allocate staff and overhead costs.
You are so right, Brian! There's a difference between information the member wants (and should be able to know) and the information necessary for management decisions.
And you hit one of my personal hot buttons when you mention tracking expenses based on business activity. Being able to do that even in its most rudimentary form is absolutely essential to good management (see my post on understanding how much it costs just to undertake a search for a new MLS vendor).
I think it's absolutely essential to have program budget reports for every activity. Some of them will suprise you. For instance, have you ever done a cost study of ethics enforcement? It's an expensive program: consider materials, member training, committee training, staff training, and volunteer and staff time spent on processing complaints. Then add to that the expense of the mandatory ethics training and monitoring/reporting requirements involved. What's the annual per member cost of ethics compliance?
Think about that approach to all your activities, from the bowling party to the free continuing ed class and the luncheon meetings for new members. Really puts a good management perspective on what you do.
Even the most sophisticated individual can on occassion come to the wrong conclusion when reviewing budgets and expenditures.
I recall with a chuckle even to this day an incident that happened to a very fine person and AE at the time. The incoming treasurer who owned his own business insisted he be allowed to review all association expenses and attempted to compare them to the line items in the budget.
After some hours of review this person finally had his "Ah Hah!" moment. A credit card expense of $350.00 was showing with no allocation to the budget. With this information in-hand he stormed into the AE's office demanding an explanation, convinced he had evidence of personal gain.
The AE, who had a very quiet demeanor, asked to see the infornation. At first the AE struggled to recall the expense, further enhancing in the mind to the investigative Treasurer that he had caught the AE red handed.
Finally, the AE recalled the expense. Leaning forward in a very quiet and unassuming tone the AE commented,
"I recall that expense now. Remember the class you taught for the association on ethics. You agreed to do it for free but I felt that was not approriate. To show you our appretiation, I bought you a Palm Pilot. I believe it is the one you have in your hand."
Winsome, keeping the overhead expense record is always tough. But I'd try to do it with each project. I usually do a before and after worksheet (check judithlindenau.com for prototypes)--one in which I estimate expenses so the Directors can approve a project, and one in which I wrap up the actual expense dollars, and often divide the total by member attending or benefitting. (That's an eye-opener!). I'd ask staff to estimate and keep records of the hours. At first it seems burdensome, but that's they only way--and they get better at coming up with the numbers as time goes on.
Bob: wasn't even a particularly snazzy Palm Pilot, was it? Reminds me of the past president who -- in the early 80's when things were really, really tough -- combed the library (it was paper back then) and found the ASAE Association Management Magazine. "Aha!," he snarled. "She's been spending unauthorized funds! I KNEW it!"
Of course, the magazine came with my ASAE membership--which I paid for out of personal funds....
Judith, I LOVE the idea of a graph - especially comparing last year to this year. I've been hesitant to print the balance sheet because most members really don't know how to read it.
A behind the scenes look at organized real estate--what works in an association, what doesn't, and what a long time AE sees as challenges facing the industry from the viewpoint of its professional organization.
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