Budgets can be amazing tools for smart financial planning, but they can also support wishful thinking and self-delusion.
Aside from investment income (for those lucky enough to have investments), organizations are dependent on dues and non-dues revenue. The path to a deficit is quite easy. You over-estimate the income and then balance the expenses to match the income, or the budget might even show a profit. There are good reasons for board leaders to over-estimate income, but it leaves the organization in a bad place.
Dues revenue potential is easily inflated by saying we are going to have a 5% increase in membership. Sounds easy! But it isn’t. What if the organization’s membership is declining by 5% each year; a 5% increase requires a 10% improvement over the status quo. “Every member, get a member” plans generally don’t work. If you want to budget for increased dues revenue, do it the year after you succeed in increasing the membership. You can’t turn membership numbers around until you first stop the decline. The steeper the decline, the less likely you can turn it around. On the other hand, if you can turn it around to even sustainable 1% growth, the membership numbers will speed up exponentially.
Non-dues revenue is no different, in that it is easy to be optimistic. Plans for expanded exhibits, advertising sales, and corporate memberships can look great on paper, but the reality is that most efforts fall short. It is true if we set goals too low, we will never achieve them. It is better for non-dues success to demonstrate success before budgeting for it. It is fine to set a goal that is higher than the budget.
The best advice on budgeting comes from the NWG Director of Finance, Doralee Billings, “budget income conservatively, and budget expenses liberally.” This approach means that organizations who take this approach to budgeting can’t spend as much as they would like.
Association managers and executive directors want organizations to budget realistically. On the other hand, association staff must be paid. If the organization can’t pay what they would like to pay management, then they will have to accept a reduction in management’s scope of work. This requires a focus on priorities, process improvement, and the highest and best use of management’s time.
