Learning to read financials can sometimes feel like learning a foreign language. For non-profit associations, this process of learning can be slowed by the often-annual turnover of its board. Few realize the full extent of the financial services that it takes to responsibly manage the fiscal health of an association. In the simplest terms, this can be broken down into the three C’s: compliance, continuity and cash flow.
In order to remain in good standing with the IRS, the state of incorporation, and the organization’s bylaws, several sets of reporting requirements must be met. The association must stay compliant with each of these requirements and the consequences can be harsh if they do not. Even though the 990 tax return is informational and usually does not result in a tax obligation, failure to file by the deadline will trigger a daily fine that grows until a filing is made. At the state level, there are different rules based on the laws of each state and failure to comply will have different consequences based on the state of organization. Finally, the bylaws of an organization are the roadmap for the board. One of the most important duties described in the bylaws is the description of the board’s fiduciary responsibilities, including that of monitoring the protection of assets and the group’s fiscal management.
From a continuity perspective, the financial year follows an annual cycle. Depending on the fiscal year end of the organization, different months will bring different deadlines to dictate the budgeting, financial reporting and tax filing requirements. If the size of the organization warrants it, this could also involve investment and endowment management as well as ensuring that restricted assets are used for their intended purpose. Treasurers need to pass these tasks on to their successor to ensure that none of these important steps get overlooked.
Finally, consistent cash flow is key to an organization. A well-developed strategic plan and comprehensive look at the various funding opportunities is key. Engaging the membership throughout the year and having a productive relationship with industry partners will help ensure that the financial needs of the association can be met throughout the year.
As mentioned earlier, the annual turnover of a volunteer board adds a layer of complication when it comes to fulfilling all of these responsibilities. Board turnover and education in these areas can be supported through the use of an association management company (AMC). By taking on the management of these day-to-day tasks, an AMC can allow the board to focus on the mission of the organization while knowing that all of the daily operations including those of a financial nature are being carried out. In addition, the best practices that the AMC has gained by managing dozens of organizations can be passed along to all of its clients so that all can benefit. It is truly a great option for a partnership focused on bettering the association and driving forwards its mission.