Financial Literacy for Associations

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Nov 9, 2013 (3 years and 7 months ago)

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Financial Literacy for
Associations

Saturday, December 1, 2012

State Leadership Workshop

Presenter: LeAnn Wilson, Chief Financial and
Operations Officer, ACTE



Financial Planning


The Budget


T
he purpose of budgeting is to:


Provide a forecast of revenues and expenditures,
that is, construct a model of how our association
might perform financially if certain strategies,
events and plans are carried out.



Communicate
plans to association
leadership



Evaluate performance


Enable the actual financial operation of the association
to be measured against the forecast.


Financial Planning


The Budget


The purpose of budgeting is to:


Control resources


Establish the cost constraint for a project, program, or
operation



Motivate leadership to strive to achieve budget
goals



Provide visibility into the association's
performance





Financial Fundamentals

Balance Sheet
: Total Assets = Total Liabilities and
Net Assets


Statement of Revenue and Expenses
: Total Net
Assets on this report = Total Net Assets on the
Balance Sheet


Cash Flow Statements
: Actual cash received
-
actual
accounts payable per month


Assets Vs. Liabilities



Assets

represent value of ownership that can be
converted into cash (examples: cash and accounts
receivable)



A
liability

is defined as an
obligation

of an entity
arising from
past

transactions or events, the
settlement of which may result in the transfer or use
of assets, provision of services or other yielding of
economic benefits in the
future
. (examples:
accounts payable, deferred revenue)


Accrual vs. Cash

Accrual accounting
: Revenue is recorded when it is
earned and realized, regardless of when actual
payment is received. Similarly, expenses are
“matched” to revenue regardless of when they are
actually paid.


Cash accounting
: Revenue is recognized when cash
is received and expense is recognized when cash is
paid.


Effective Cash Management


Another aspect of
cash management
is knowing a
company's optimal cash balance. This is the precise
amount needed to minimize costs yet provide
adequate liquidity to ensure bills are paid on time
(hopefully with something left over for emergency
purposes).



Liquidity

is the amount of money on hand to meet
current obligations.

Effective Cash Management


Understanding your association’s cash cycles


Poor cash flow is one of the leading causes of
association failures, while optimizing cash flow is
one the most important things you can do to help
achieve your association goals.


Most associations do not have a consistent
amount of incoming cash every month requiring
management of fluctuations


Most associations cash flow is impacted largely by
timing of dues payments and payments of conference
registrations



Financial Roles of Association Leaders


Understand the association's underlying finances


An association leader must have a comprehensive,
detailed understanding of the organization’s finances at all
times


Volunteer leaders need to make sure that they are getting
enough details in the financial reports to make well
-
informed decisions


Communication is key


Volunteer leaders and staff need to make sure they
completely understand one another when discussing
financial matters

Financial Roles of Association Leaders



Stay involved in the accounting process on
an ongoing basis


At minimum, obtain financial reports monthly



Review actual operational results against
budget


Obtain explanations for significant, unusual or
unexpected variances


Financial Roles of Association Leaders



Open and review all monthly bank statement
and/or conduct spontaneous reviews online


The preparer of the bank reconciliation(s) should
be independent of the cash receipts/disbursement
functions.


Back
-
up computer files at least daily


Store tapes off premises and in fire
-
proof safes