Over the last decade, associations have progressed to operate more like small businesses, particularly from the standpoint of financial management. Therefore, an association’s finances need to function flawlessly and meet all of the benchmarks, to ensure its financial sustainability.
If you’re an association that’s handling its financial management internally, you’re not alone. Most associations try to manage this function in house, either through an elected treasurer on their board or through an administrator on staff. I’ve seen many associations operate this way. When they do, often times, they face financial management challenges.
The top three challenges include:
- When a treasurer isn’t a bookkeeper by trade, he/she generally doesn’t have any professional accounting or finance background. Thus, his/her knowledge of accounting guidelines and principles may be limited. This is concerning when it comes to tax preparation. An association can lose its not-for-profit designation with the IRS if its tax return is misfiled or incorrect.
- When an association doesn’t have the time or expertise to track to budget, keep a close eye on expenses, etc., its bottom line can be negatively affected.
- When board member positions are unpaid, which most tend to be, these individuals usually are running their own personal businesses full time. This limits the amount of time that a treasurer can dedicate to the association’s financial process.
For these reasons, various associations would benefit from outsourcing their financial management. There are association management companies (AMC) that offer this service, in addition to leadership and governance, member management and recruiting, and database management.
AMCs also can serve as an organization’s headquarters, provide daily operations and even become the public face. Select AMCs go a step beyond administrative functions and also offer marketing solutions encompassing conference planning, branding, digital marketing, web and mobile app development, social media, public relations, advertising, collateral and publications.
Here are financial management areas that you could outsource:
- Budget development
- Financial review
- Accounting services
The following are benefits of outsourcing financial management:
Boards and executives have limited expertise and time to oversee the finance function. On the other hand, AMCs have an accounting department on staff with skills sets in finance and accounting. These specialists can dedicate time to your finances and have established relationships with outsourced accounting firms, which they can readily consult for guidance. This enables AMCs to provide you with CPA financial and tax services, along with CFO-level association financial services. Having this extra set of hands and industry knowledge improves efficiencies and reduces costs. It also allows your board to focus on reaching its goals.
Due to a high-level of financial experience, AMCs deliver the most accurate financials. They also work closely with trusted CPA firms, to ensure that all government filings are prepared accurately and on time. AMCs analyze the financial packages, to ensure that the reports are compliant with generally accepted accounting principles. The process includes collecting payments, managing investments, coordinating independent audits, and handling all banking and financial reporting functions.
Thorough financial management begins with an association developing an annual budget. AMCs have particular expertise and experience in this area because they’ve worked with different types of associations, with diverse financial scenarios. The budget serves as a plan for yearly financial activity, although they are not set in stone and could change throughout the year. This is even more of a reason why it’s important to partner with an AMC. This type of company has the time and staff equipped to handle financial changes on the fly.
Accurate Financial Picture
An association greatly benefits from having a dedicated and knowledgeable financial professional, to help with understanding its financial situation. This includes a detailed review of your financial information, including financial reports and preparation for tax filing. An AMC provides the safety measure that ensures the financial health of your organization.
Peace of Mind
When financial professionals handle the process, you can have peace of mind. The biggest reason? You’ll be reducing the risks of IRS and state filings not being filed timely and accurately. Similar to the administrative role, AMC management of an association’s finances operates seamlessly and meets all of the benchmarks to ensure financial sustainability. In turn, this will free you up to focus on running daily operations and growth.
There’s an association that comes to mind that didn’t have peace of mind because it handled its financial management in house for years. When the association contracted with CMA, it didn’t realize that its treasurer had failed to file taxes with the IRS for 10 years. This caused the association to lose the not-for-profit status and was unknowingly acting as a for profit corporation. CMA prepared and filed 10 years of tax returns and was able to get the not-for-profit status reinstated for the association, within one year of retaining CMA.
This example shows what could happen when financial management isn’t outsourced. It also substantiates that associations shouldn’t take financial management lightly because it could make or break their ability to thrive or ultimately fold. As such, associations that outsource financial management not only have a dedicated team of financial professionals on their side and a stable future, but also will be saving money in the long run.