Why Associations Should Consider Financial Forecasting
Tuesday, June 1, 2021
When you leave the house without checking the weather forecast, you sometimes get caught in the rain without an umbrella. The same can be said for an association and its financial health. If an association doesn’t take the time to perform financial forecasting, it could encounter some unpleasant budget surprises, and after a year like 2020, it's important to always be prepared for the unknown.
Due to the global health pandemic, many organizations were forced to dip into their rainy day funds in order to stay afloat. While we can't always predict when world-altering events are going to occur, forecasting can help associations better prepare for the unexpected. Associations that forecast their finances two or more times a year have a greater understanding of their financial positions, allowing leaders to make more informed operational decisions. This can also translate into better services and events for members.
It all starts with knowing an association’s cash-flow position at all times. Financial forecasts take an in-depth look at current and future revenue and expenditures and can predict possible shortfalls or surpluses at the end of the year. If a forecast indicates that revenue will be down, an association can respond quickly with initiatives that increase cash-flow opportunities, which helps the association avoid dipping into reserves or liquidating investments.
Conversely, associations don’t want to be stuck at the end of the year with a major budget surplus either. Pinpointing additional funds ahead of time will allow some associations to increase offerings and value to members by investing in educational programs or additional events for members.
For example, one of my client organizations had previously ended a fiscal year with a $300,000 surplus, funds the association thought would be better spent on additional educational offerings and events for members. I introduced financial forecasting as a way to stabilize their reserves and even out their cash flow. After conducting numerous forecasts, the association reached its goal and broke even the following year.
Another benefit to forecasting is the synergy created among the association staff. Forecasts look at the updated cash flow of all departments: membership, sales, events, and so on. Furthermore, forecasting works best as a partnership between operations and finance rather than as a one-person job. The financial input from the various departments throughout the year is an effective way to keep operational leaders in the loop and helps build a better organizational team.
Some associations disregard financial forecasting because of their size. However large or small, forecasts can have a significant impact on associations of all sizes. Usually, the larger and more complex an association model is—e.g., multiple events, multiple product offerings, and anniversary membership dues—the greater the need to forecast. That’s not to say that small associations can’t have complexity. Because small associations operate on such minimal margins, decreases in event attendance or membership rates could be devastating to the organization.
Other associations are concerned about the time investment. Financial forecasts shouldn’t take longer than a few weeks since the association already has the baseline of the budget. Also, the time invested in forecasting offsets additional time taken up by unexpected budget shortfalls or surprises.
Whether at the beginning, middle, or end of the year, it is critical to know where an association stands financially at all times. Financial forecasting helps associations avoid financial surprises, carry out strategic operational decisions, build stronger teams, and provide better services for members. Taking the time to forecast now could save an association from adverse financial issues in the present and down the road.
This article was originally published by Associations Now. www.associationsnow.com.
Return to Home