How to Protect Your Association from Costly Risks and Common Pitfalls

Managing an association’s finances can feel overwhelming, especially when the biggest risks are hidden in plain sight. At our recent CSAE workshop, How to Protect Your Association from 5 Major Financial Risks, executives shared their toughest financial challenges.

In this post, Enkel Co-Founder Omar Visram, answers the most common questions from the workshop, offering clear, actionable steps to help you safeguard your association’s financial future.

Let’s dive in!

1. How can we determine the appropriate level of reserves for our association, and what steps should we take to maintain them?

While 3-6 months of operating reserves is generally recommended, the ideal amount depends on a few different things.

• Seasonality: Associations with uneven cash flow cycles (e.g., annual dues) may need larger reserves.
• Funding risk: Assess the likelihood of losing a major sponsor or revenue source.
• Board judgment: Collaborate with leadership to determine an appropriate reserve goal.

We always advise the member-based organizations we support to build reserves incrementally through surplus budgets or targeted fundraising campaigns.

Whether it’s offering online courses, hosting in-person events during low-income periods, or more, I encourage you to sit down with your team and come up with some creative ways to generate additional fundraising throughout the year.

2. What tools do you recommend for improving accuracy in revenue recognition and avoiding common pitfalls?

Although it comes with a steeper learning curve, QuickBooks Online Advanced is a top choice for associations, because it offers robust features designed to handle the unique financial needs of associations. Its advanced functionality allows for better management of complex tasks like revenue recognition, deferred revenue, and detailed financial tracking.

Here’s how to get the most out of QBO advanced and avoid the common revenue recognition errors most member based organizations make:

• Train Your Bookkeeper: Ensure they understand accrual accounting and specifically, ASNPO (“Accounting Standards for Not-for-Profit Organizations) standards to manage association-specific requirements effectively.
• Review Deferred Revenue Monthly: Regularly reconcile deferred revenue schedules with financial statements to catch any errors early.
• Compare Revenue to Services Delivered: Ensure that revenue recognition aligns with services provided, avoiding potential discrepancies during audits.
• Use Custom Permissions: For associations with multiple team members handling finances, QBO Advanced offers customizable user permissions. This ensures only the right people can access or modify sensitive financial data.
• Leverage Customized Reporting: Associations often need to produce detailed financial reports for boards or stakeholders. QBO Advanced allows you to create custom reports, giving you insights into revenue streams, expense allocations, and other critical metrics.

If you need some help learning or setting up QuickBooks Online Advanced, Enkel can help.

3. How can we balance cash flow when membership dues are primarily received at one point in the year?

This is a common sticking point for member-based organizations, so you’re not alone.

When cash flow is uneven, consider these strategies:

1. Diversify Revenue Streams: Devise and plan fundraising events or professional development workshops during slower months.One association we worked with launched a mid-year donation drive, which helped them bridge the gap between annual dues collections and year-end grants.
2. Forecast Cash Flow: Create a rolling cash flow forecast to predict high and low periods. Use cash flow forecasting tools can help you predict and address low periods before they turn into major problems.
3. Build Reserves: Use reserves strategically to manage gaps between revenue inflows. You’ll want a cash reserve that can cover 3-6 months of expenses.

4. If financial reporting responsibilities are unclear, how do we approach restructuring responsibilities between the Executive Director and Treasurer?

Unclear financial reporting responsibilities can lead to confusion, missed deadlines, and governance risks. And unfortunately, we see it quite often in member-based organizations.

Here’s how you can avoid this pitfall.

1. Define Roles Clearly:

When roles are unclear, both parties may assume—or avoid—responsibilities, leading to errors and accountability gaps.

• The Executive Director is responsible for ensuring financial reports are accurate and delivered on time.
• The Treasurer’s role is to review the reports, ensure governance oversight, and question the data when necessary.

2. Update Job Descriptions: Clearly specify financial tasks in job descriptions for the Executive Director and Treasurer, outlining who owns what.

3. Clarify Reporting Structure: Ensure everyone knows the ED manages financial reporting, even if bookkeeping is outsourced.

4. Outsource Where Needed: If in-house resources are stretched, outsourcing bookkeeping or CFO services can fill the gap while ensuring compliance and accuracy.

Associations we work with often find that outsourcing complex financial operations tasks actually strengthens internal governance, because it allows key staff to focus on data interpretation and strategic leadership.

5. For associations with small budgets, what low-cost or accessible options are available for outsourcing bookkeeping or financial management tasks?

Unfortunately, smaller organizations are not exempt from reporting and auditing requirements. Thankfully, though, a smaller budget doesn’t need to stop your association from maintaining proper financial management.

Regular bookkeeping is essential for tasks like fraud detection and accurate ongoing reporting—here’s how to do it cost-effectively.

Outsource Key Tasks
Rather than hiring a full-time bookkeeper, consider outsourcing essential services like bank reconciliations and monthly reporting. At Enkel, we tailor our services to fit small budgets while ensuring compliance and accuracy.

Focus on Essentials
Prioritize monthly reconciliations, deferred revenue tracking, and compliance with ASNPO. These are critical for managing risk and providing clear financials to the board.

Use Affordable Tools
Invest in scalable solutions like QuickBooks Online Advanced, which simplifies reporting and automates processes to reduce administrative overhead.

Do Not Ask CPA to do Your Bookkeeping

Although it’s tempting to have your CPA do your books, bookkeepers and bookkeeping services are generally cheaper, per hour or per project, than a CPA.

With these strategies, you can manage your finances without overextending your resources.

6. What are some signs that our association might need to overhaul our budgeting processes?

Budgeting issues can have ripple effects, from missed opportunities to eroded trust with your board. Here’s how to tell if it’s time to revisit your process.

Warning Signs:

• Frequent Variances: If budget vs. actual figures are consistently off, it’s a sign that your assumptions or data are flawed.
• Lack of Accountability: When team members aren’t responsible for specific budget lines, errors often go unnoticed.
• Oversimplified Budgets: Simply dividing last year’s numbers by 12 doesn’t account for seasonal income or event-based expenses.

How to Fix It:

• Assign budget line ownership to team members who understand the associated expenses.
• Build budgets with a month-by-month breakdown and department-level detail.
• Use historical data and anticipated changes to create realistic projections.

Taking these steps will give you better insights into your financial performance and help you spot issues early.

We’ve helped other member-based executives learn how to make sense of their budgets and numbers. If you need some guidance or training in this area, book a chat with our team.

7. Could you give an example of how to break down a budget by month and department for more granular financial tracking?

Sure! Granular budgets provide clarity and allow for real-time adjustments. Here’s how to do it:

Breaking your budget down by month and department helps you stay on top of your finances and avoid surprises. Here’s a simple way to do it:

1. Start with Your Chart of Accounts
Think of the chart of accounts as your budget’s foundation. It’s a list of all the categories you use to track money coming in (like membership dues or event income) and money going out (like salaries or event costs). Use these categories to organize your budget.

2. Break It Down by Month
Not all income and expenses happen evenly throughout the year. For example:

• Membership dues might all come in January.
• Conference expenses (like venue fees) might hit in July or August.

Write out the expected income and expenses for each month based on when they happen. This way, you’ll see months where cash is tight and can plan ahead.

3. Assign Accountability
Give specific people ownership of different parts of the budget. For example:

• The Events Manager handles the budget for conferences.
• The Membership Director is responsible for dues collection.
  When people are in charge of their own budget areas, it’s easier to spot problems and fix them.

Example:
Imagine your association is planning a conference:

• March: Pay deposits for the venue and speakers.
• April – June: Spend on marketing and promotions.
• July: Collect ticket sales and sponsorship revenue.
• August: Pay final invoices for catering and logistics.

By spreading out these costs and revenues month-by-month, you’ll know exactly when your association needs extra cash or when it’s flush. This makes financial tracking easier and helps you avoid unexpected shortfalls.

Pro Tip: Use software like QuickBooks Online to build this kind of budget. It can auto-generate reports so you can see how actual expenses compare to your budget each month.

8. How can we simplify complex financial reports to make them more understandable for board members without financial backgrounds?

Many board members don’t have a financial background, so overly complex reports can be overwhelming. Simplifying them is a fantastic idea. I’d suggest you go about it by focusing on clarity and key metrics, and leaning into imagery to support the data.

• Use Visuals: Replace dense tables with charts or graphs to highlight trends and variances.
• Provide Key Insights: Summarize the “so what” for each metric—e.g., “Revenue is down 10%, primarily due to delayed sponsorship payments.”
• Stick to Essentials: Include only the income statement, balance sheet, and budget vs. actuals for most meetings.

At Enkel, we specialize in producing clear, actionable financial reports that align with the needs of boards and leadership teams.

9. What are some practical steps to take if an association finds itself with an unexpected cash shortfall?

Cash shortfalls are stressful, but quick action can help you regain control.

Immediate Steps:

1. Reallocate Funds: Identify non-essential expenses that can be deferred or reduced.
2. Leverage Reserves: Draw from your cash reserves, if available, to cover immediate needs.
3. Launch Fundraising Campaigns: Engage members or sponsors with urgent appeals, explaining the need and impact.

Looking Ahead:

• Use forecasting tools to predict future shortfalls and adjust your budget proactively.
• Regularly review your financials to spot cash flow issues before they escalate.

Accurate, up-to-date bookkeeping is essential for these steps—accurate financial records will help you spot cash shortfalls before they arrive. Consider outsourcing your books if your team is struggling to keep up or frequently taken by surprise with unexpected fluctuations in cash flow.

10. How does Enkel ensure that associations’ financial data and processes remain compliant with governance requirements?

Compliance isn’t just about ticking boxes—it’s critical for maintaining trust with your board and members. Here’s how Enkel ensures compliance:

Proactive Planning:

• Deadline Management: All reporting deadlines are tracked in our project management system and shared with clients.
• Onboarding Alignment: We review governance requirements upfront to ensure processes meet your association’s needs.

Ongoing Oversight:

• Regular reviews of financials and compliance metrics.
• Transparent communication with boards and executive teams.

With Enkel, you can rest assured that your financial processes are compliant, accurate, and designed to support your strategic goals.

Financial management doesn’t have to be daunting—especially when you know where to focus your efforts. By addressing these common challenges head-on, you’ll not only avoid costly pitfalls but also empower your leadership and protect your association’s future with the right financial strategies.

If you’d like personalized support, Enkel’s team specializes in helping associations streamline financial operations, improve reporting, and ensure compliance.

Contact us for a free consultation to see how we can help your association thrive.