Kelly Meiners, Director of Accounting, Diversified Management Services

When thinking about financial sustainability, who would have ever envisioned the economic environment that we have endured in 2020? Who would have planned for a pandemic and the economic conditions associated with it? But it has happened, now what do we do?

As a management best practice, boards we work with set a goal set aside reserves to prepare not-for-profits for this challenge. This can be difficult, given the time it takes to accumulate, however 2020 has proven how truly important they are!

So, what’s next? Those reserves that were so carefully planned for maybe depleted leaving associations facing operating losses in 2021. 

All is not lost!  The first step is to figure out where you are.  A cash flow analysis is the perfect means to accomplish this – a powerful tool, but the power lies in how it is prepared.  Organizations need to prepare a cash flow analysis looking at each month separately asking the following:

• What receipts are going to come in each month, what bills are going to be paid?  This will show where cash issues lie. 
• Are there months where the organization will be short on cash?  Prepared in advance, this will give the organization time to plan and forge a much-needed partnership between the accounting team, the organization’s leadership, and the board of directors. Once prepared, there needs to be constant communication between these parties to make this a successful tool.

The second step is to figure out where you are going. The next tool in your box is the pivot.  So how does an organization pivot?  Just like a basketball player keeps his or her one leg planted while using the other to find the open teammate, for an association, this means looking at your mission. What is our purpose?  Who do we serve?  What essential services do we provide our members? The next part is to move in search of a teammate. For an organization, this means taking what we have learned from the cash flow analysis and the deep dive we just performed to determine which way to turn. 

One example of how associations are learning to pivot in our current environment is an annual conference.  As is true with most, in-person events are a significant source of an organization’s annual revenues. Today’s reality has forced all of us to ask the tough questions:

• How do we re-invent our in-person conference in the age of COVID?
• What does success look like on a virtual platform? 
• How do we deliver real value to members and sponsors with an online conference?

Engaging your accounting team at this point allows decision-makers to assess risk and implications by employing a cash flow analysis. Incorporating with all likely scenarios considered can address key factors that help determine the best one. Filtering them through an accounting lens provides greater context and data as you consider:

• If the meeting is canceled are there facility contracts that still require payments?
• What is a realistic registration number and what is the minimum the organization needs to move forward?
• Will you meet the hotel minimums with the new level of attendance?
• On a virtual platform, what are additional costs?  What are the savings?
• What percentage of members will attend? 
• Will sponsors drop off? What impact will that have on the bottom line?

The organization’s accounting team and management need to address each of these questions within the cash flow analysis. Once the team has completed the exercise cash flow for each scenario, the answer is usually pretty clear as to what way the organization needs to pivot to serve its members and how to balance the provision of funds between operations and reserves.

With every challenge comes opportunity.  Perhaps the opportunity here is to create a much-needed team, one between your accounting department and your decision-makers. A team that works together on an ongoing basis to look at cash flow, the timing of expenses and revenues, and the potential to eliminate expenses and grow existing and/or new sources of revenues, as well as ways of doing business. 

At its very core, financial sustainability is about building a financial system and team that can function in good times and in bad, and a system that can overcome challenges when they arise.

Kelly Meiners is the Director of Accounting at Diversified Management Services
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