Imagine running the same race, year after year.
As far back as you can remember, every April you lace up your shoes and run a half-marathon. Or a full marathon. Or even a 10k. The distance doesn’t matter. What matters is that you have a pretty good idea of how to prepare for your race. You know what to expect while you’re running. You know you’ll be sore for a few days after your feet leave the pavement.
The running isn’t easy, but at least you know what to expect.
Then one year—we’ll call this year “2020”—disaster strikes.
Five minutes into your race, you blow out your knee. Race paramedics have to lift you off the street and drive you to the nearest hospital. The doctor tells you that while he expects a full recovery, that recovery will take time. Before you run 26 more miles, you will have to walk across your living room without collapsing in pain.
Financially speaking, in 2021 (and for the foreseeable future) many associations are suffering the organizational equivalent of recovering from a blown-out knee. While there is no reason to believe a full return is impossible, getting back to competition shape will take time.
Here are three things your association needs to keep in mind as it prepares to get back on (the) track.
1. Have a three-year budget that plans for the worst.
Associations should always have a three-year budget that aligns with their strategic plan—and in the aftermath of one of the most challenging years associations have ever faced, your board of directors needs to adopt a three-year budget that plans for the worst.
Even with coronavirus cases declining, states opening, and vaccines available to any adult who wants one, it will be a year or two before business travel and association events return to anything resembling a pre-pandemic world. Your association should budget accordingly—and be pleasantly surprised if the reality turns out to be more optimistic than most economists expect.
Craft a three-year budget that plans for continued challenges.
That’s the first step.
The second step?
Getting back to the basics and learning to walk (again), before you run.
2. Focus on your core value proposition.
When times are good, associations should use revenue above expenses (and above their reserve-building effort) to invest in new programs and services that deliver additional value to members.
But in the wake of our collectively blown-out knee, times are not good.
Right now, associations need to focus on the fundamentals.
A sense of community, professional development, and advocacy on behalf of your industry and your members form the core value proposition of most associations. That value can be delivered in a variety of different ways, but financially challenged associations must focus on the benefits and services their members value most.
How do you know what your members value?
Now would be an ideal time to survey your members and ask them about the services and benefits they value most.
The answers may surprise you.
Whatever the answers are, they should form the core of your association’s recovery strategy.
3. Remember that (metaphorical) blown knees are exactly why your association needs a healthy reserve.
How much money should your association keep in its reserve fund?
Guidelines differ, but a good rule of thumb is to keep at least fifty percent of your association’s annual operating budget in a reserve account. Those funds should allow your association to better weather catastrophic events, like a blown-out knee—or, more accurately, an unexpected pandemic.
Most boards of directors are aware of the need to have a healthy amount of money saved in a reserve account.
(If that’s new information to your board, you need to consider getting a new association management company.)
But few boards have actually lived through an event where a lack of reserves could permanently devastate an association.
Your association may not currently have the ability to put money away for the next disaster. In fact, there is the strong likelihood that it is just trying to survive the current disaster. That’s okay—but existing in that state is not a sustainable financial strategy. Even in bad times, your association needs to adopt a strategic plan that allows it to replenish its reserve account.
Your board of directors can start by developing a reality-based three-year budget that emphasizes its core value proposition and prioritizes the ability to put a little money in the bank for the next rainy day.
Or the next time you blow out your knee.