Main

May 6, 2011

Key Ratios quiz: Chi Town v. DC battle

It's time for the Form 990 Key Ratios battle royale: DC v. Chicago; Chicago v. DC. But first, I want to thank those who have been following the quizzes all week (and I'm talking to all three of you!). I'd like to tell you the point was to show you some of the ways you can slice and dice the 990 Key Ratios database to develop benchmarks that are most meaningful for your organization. And in the interest of full disclosure, I absolutely timed this series to be the week before you could get in an play around with the tool yourself at the Finance, HR & Business Operations Conference.

But mostly I'm just kind of an association nerd, and I find poking around in the database fascinating. I've enjoyed researching the questions. Anybody who wants to guess at answers to this final quiz should do so in the next four hours (and oh yes, I do have a fantabulous prize for the person who does the best or provides the funniest or most shocking answers), after which I'll be putting the answers up.

First, a little information to help you answer the questions. Overall, the database found 242 qualifying associations in the Chicago area and 399 in the DC area for the 2009 tax year (those numbers will likely go up with the next update as many associations are still filing their 2009 returns). The median size in DC is 11 employees and $1.7 million, the average (which does not correct for outliers) is 32.6 and $6 million. In Chicago, the medians are 11 and $1.2 million, with averages of 37.9 and $3 million. Wow! What a difference right there--which tells you there are some really large associations in DC that skew its averages. And now...

Game on!

1. You have to start with the compensation right? Which area has the higher median compensation costs per employee (remember, medians correct for outliers)?

ANSWER: Not even close: DC $63,574, Chi: $39,976

2. Is that difference in median compensation costs closer to 5%, 20% or 40%?

ANSWER: That's 40%. FORTY PERCENT! That's just not right.

3. Do the compensation differences hold when you control for the revenue of the association (i.e., compare only associations in each market that are, for example, between $1 million and $2 million in revenue.)

ANSWER: I looked at $1M to $2M and $2M to $5M and $5M to $10M, etc. DC was always ahead. By a lot. Maybe not 40 percent in every case, but by a wide margin.

4. I'm going to give you a piece of information that might sound like it helps answer the first three questions, but I wouldn't count on it if I were you. The information is this: compensation costs as a percent of overall expenses is pretty even for both regions. Does the same hold for compensation of officers, trustees, and key employees? If not, who pays the top staff a higher percent of overall expenses?

ANSWER: This is much closer, but DC still is ahead, with the medians being 11.7 percent and 9.9 percent.

5. Ok, enough about compensation. Which area has more profitable associations?

ANSWER: DC is threatening to make this a rout--they're more profitable then their Chicago counterparts in the 2009 tax year (remember, associations were still reeling from the recession). DC had a profitability of 1.2%, Chicago was -1.5.

6. Who has more assets tied up in land, buildings & equipment?

ANSWER: Don't know if it's good or bad, but Chicago has more than twice as much--as a percent of expenses anyway--tied into land, buildings, and equipment: 5.9% to 2.5%.

7. Who has a higher percentage of unrestricted net assets?

ANSWER: Chicago looks to be the healthier big-picture position with unrestricted net assets of 81.3 percent compared to DC's more pedestrian 59.2 percent.

8. Who pays higher occupancy costs as a percent of total expenses?

ANSWER: It's close, but DC does, 4.8% of expenses vs. 3.6%.

9. Who has lower conference and meeting expenses as percent of total revenue?

ANSWER: Chicago comes in at a lean 1.0%; DC is 4.1%

10. Who got better returns on their investments?

ANSWER: No ties in a battle royale, so Chicago takes this question, but by the slimmest of margins: 0.6 to 0.5.

Bonus Question: In which town is it better to work for an association?

ANSWER: Yeah, I'm not touching this one with a 39.5-foot pole. Feel free to weigh in though.

| | Comments (1)

May 5, 2011

Key Ratios quiz day 4: Hodge podge

I'm sure everyone is breathlessly awaiting tomorrow's Chicago vs. DC quiz, (well everyone in the two largest association hubs in the U.S.) in this series of posts from ASAE's 990 Key Ratios database. Today, there's not particular theme, just me playing around in the tool and finding some things I thought were interesting. Good luck on the quiz--I'll post answers tomorrow morning. If people take some guesses in the comments, I'll come up with a fantabulous prize to the person who does the best or is most entertaining.

1. When ranked by per capita income, Connecticut is the richest state; Mississippi is the poorest. Looking at all data we have for each state from the 2009 tax years (217 for CT, 106 for MS), the associations in Connecticut are on balance larger, averaging 27 employees and just over $2 million in revenue, compared to 28 employees and $1.9 million for Mississippi. So which state averages higher compensation costs per employee?

ANSWER: The obvious answer would be Connecticut, so of course the answer is Mississippi.

In the next four questions, choose either c(3) or c(6) as in the tax status of the association. Quick reference tip, most charities are c(3), but in the association world many of the education-based and scientific-based organizations also receive that designation. Most other professional societies and just about all trade associations are c(6). To control for size, I limited my search to $1 to $5 million.

2. Which group is more profitable?

ANSWER: The infamous tie, but I'd give it to you if you said c(3). Here's how the numbers break down, with profitability being revenue divided by expenses (I'm giving median and average respectively): c(3)s - 1.3 and 1.7; c(6)s 1.2 and 0.8. It's a little surprising to me, because most people in the association world assume trade associations are more profitable than professional societies--though remember plenty of professional societies are in the c(6) category. It's hard to ascribe a lot of meaning to this number by itself. It could mean that professional societies in the c(3) category are more profitable than those in the c(6) category, or that the other main element in the c(3) category, charities (remember only ones which collect membership dues would be included in this research) are more profitable--but I admit it's hard to know why that would be the case. My guess would be that trades are hit harder than individual membership organizations (IMOs) by economic downturns, and this number reflects that. It will take a couple more years worth of data to test that theory.

3. Which group has a higher current ratio? (What's a current ratio? See Question 4 from yesterday.)

ANSWER: If you knew the answer to question 2, you could probably answer this one, too (if you knew what the hell a current ratio was); it's c(3)--5.5 compared to 3.0. Both are healthy numbers.

4. An easy one: Which group depends more on dues?

ANSWER: Of course it's the trades in the c(6) category that are the difference maker. When comparing trades and individual membership organizations, trades generally place more emphasis on advocacy and public awareness--things that take the collective dues assessment to pay for. The IMOs place relatively more emphasis on knowledge attainment and sharing, which often have fees in addition to dues associated with them. So it's an obvious answer, but I never would have guessed how big the difference is. For c(6) associations, 46 percent of revenue is from dues; for their c(3) counterparts it's only 7.9 percent.

5. Which group has more revenue per employee?

ANSWER: Interestingly, even though c(3)s are more profitable (at least in the 2009 tax year) and have a better current ratio, it's the c(6)s that are more efficient with their staffing--strikingly so. The c(6) category gets $172,000 per employee while the c(3) category earns just $74,000 per employee.

And today's last question for all you HR people:

6. In looking at all data from the 2009 tax year--all sizes, all types of associations--what percent of total compensation costs are paid as benefits (at least as reported on the Form 990)?

A. 7.5%
B. 16.4%
C. 21.0%

ANSWER: It's A - 7.5 percent. Yeah, that sounds low to me, too. Could be how stuff is being reported on the 990, or perhaps it's a fairly accurate figure. It would take digging into some individual 990s compared to an association's actual financials to tell for sure.

| | Comments (1)

May 4, 2011

Day 3 Quiz: Down in the financial weeds

Ok faithful readers, if you've been following this series so far, prepare to get down in the weeds. If you're not a finance person, don't be too turned off, I needed to get a little help getting to the meaning of this stuff myself (we have a wonderful CFO here, Heidi Robey--thank you Heidi!).

One way you can sort the data in the 990 Key Ratios tool is by something called "Investment Asset Balance." I interpreted this to be a proxy of how much an association had in reserves. It's not quite apples and apples. When you compare those with a large investment asset balance against those with a small one, controlled for organization size, you see that those with the smaller asset balance are sitting on a higher percentage of cash and have more tied up in building and other capital. However, the associations with larger investment asset balances also had significantly more net assets.

(Are there any nonfinance geeks still with me? I didn't think so, feel free to blast me when I try to explain the current ratio in one of the questions below.)

As a result, I'm going to call it an apple even if it isn't quite. I'm going to say that organizations with larger investment asset balances are going to be the organizations that over time have had more financial success than organizations with relatively smaller investment asset balances. What are other characteristics that separate the investment haves from the investment have nots? That's today's quiz.

We're looking at the 2009 tax year and associations with between $1million and $10 million in revenue. We're comparing associations with an investment asset balance of less than a quarter-million dollars with those having more than half a million.

1. Those with larger investment asset balances generate more revenue per employee. How much more? That's the question (I'm using median to discount outliers, but mean would have a similar result)

A. $23,776
B. $59,591
C. $121,083

ANSWER: B, $59,591. It stands to reason that financially successful organizations would make more per employee, but that is a huge number. If you have 20 employees, that's a million dollar difference in revenue. A look at averages in each group really shows the difference: those with lower investments average $2.6 million in revenue with 57 employees; the larger investment group averages $3.3 million with 51 employees.

2. They also pay more. When you compare total compensation costs per employee, how much more do those with large investment assets spend?

A. $4592
B. $9765
C. $17,581

ANSWER: C, $17,581. You might think this one would be closer, because to accumulate revenue in excess of expenses (enabling a large investment portfolio) requires efficiency, and as we've already demonstrated in these quizzes, compensation is a hefty percent of the expense of running an association. Clearly they're not squeezing efficiency out of their compensation lines.

3. Who relies more on membership dues as a percent of revenue?

ANSWER: Of course it's the low investment group. Seems logical that the more financially successful organization is going to have more diversity in its income streams. And it's pretty substantial difference: dues are 36 percent of revenue at associations with larger investment balances and 46 percent at those with smaller balances.

4. This question involves the current ratio, a measurement of financial health. In poor man's terms, it essentially compares current net assets to current net liabilities. So, if it's less than one, it means you're going to have a tough time paying your bills and it's past time to start talking to a bankruptcy lawyer. If you're an association in double digits--if any exist--you're bilking your members and need to invest some of that cash in new initiatives. So the quiz question is this: what number does the current ratio of associations with relatively large investment asset balances start with? Two pieces of information to help you make an educated guess: the current ratio of those with little investment asset balances is 2.8; the ratio for all associations in the revenue range we're looking at is 3.5.

ANSWER: Congratulations to our one quiz taker who guessed 5.5. The answer is 5.4 or almost double. However, if I worked for an organization looking at 2.8, I'm not particularly worried. Don't get me wrong, something in the 5s would be nice, but I wouldn't be worried for my job everytime the stock market slumped.

5. If you're still with me after the complexity of that question, God bless you! The final question is which of the following expense categories do you think are significantly different when you compare the two groups of associations we've been talking about in this post? Choose any/all categories that cost one group more as a percent of total expense than the other.

Accounting, Professional Fundraising, Technology, Advertising & Promotion, Travel.

ANSWER: A trick question I put in because it fascinates me. The answer is none of them. Oh, they may differ by 2 or 3 tenths of a percent, but for the most part, the expenses outlined on the 990, other than compensation, match up pretty uniformly. (The difference is made up in the not particularly enlightening expense line labeled "all other expenses.")

That's it. No fantabulous prizes today--no one seems to be guessing answers anyway. It's too bad, I had a lovely set of coasters with our old logo on them. I think they're valuable as classics. I'm sure you're reading anyway, or at least you did before this quiz. Keep tuning back--I've already started the big DC vs. Chicago quiz that will run Friday.

POSTSCRIPT: Lauren, I love that you put yourself out there and made some guesses. You better believe I'm sending you some coasters! (Hey everyone else, see what you're missing out on by not guessing...)

ASAE coasters2.jpg

| | Comments (2)

May 3, 2011

Key Performance Ratios quiz: Large v. Small

Today's 990 Key Performance Ratios quiz (what's that?) looks at 2009 tax year data, and we're comparing two different-sized segments of associations: less than $1 million up to $2 million in revenue (which I'll call "smaller") and $10 to $20 million (which I'll call "larger"). To give you a little context, the median number of employees and total revenue for the smaller associations are 7 and $541,000 respectively; for larger associations it's 91 and $13.2 million.

For questions 1-4, choose smaller or larger:

1. Which size association was able to weather the stormy economy better? (We're going to use net profitability and revenue growth vs. prior year to tell this story.)

ANSWER: The logical answer is the right one here: Larger--by a pretty wide margin. To correct for outliers, we'll look at medians. The median large association reported profitability of 1.3 percent in the 2009 tax year; the median in the smaller association group was 0.2. Likewise, when comparing revenue to the previous year, the large association reported a decrease of 1.2 percent, but the smaller association declined 3.2 percent. That all makes sense to me, while having more resources means you need to produce more, it also means you have greater flexibility to make corrections when needed.

2. Which size collects receivables faster?

ANSWER: Smaller organizations, with a median association taking 26.5 days versus 30.3 for its larger counterpart. I honestly don't know why smaller would be faster here--working with customers and vendors that have less bureaucracy maybe? But almost four days would seem to be pretty important from a cashflow perspective.

3. Which size spends a higher percentage of its expenses on compensation?

ANSWER: Sorry for the trick question, but it's basically a tie: The averages are 34.0 percent for smaller and 33.6 percent for larger; the medians are similarly close but with larger paying slightly more. It was a gimme question, if you'd answered either way, I'd have given you credit.

4. Which size spends a higher percentage of revenue on compensation of it's officers, directors, trustees, and key employees (note: this is usually the compensation of the chief staff and senior-most staff)?

ANSWER: I admit, I would have guessed wrong on this one: it's smaller, with a median of 6.9 percent versus 4.1 percent for larger (and the averages were even farther apart). Comparing this to the total compensation might indicate the relative disparity between the highest paid staff and the rest of the staff is greater in smaller associations than in larger. I've looked at dozens of Form 990s, however, and I don't think that's the case. It's probably because smaller organizations report a higher percentage of people as key staff--but don't just believe my hunch, you'd have to do the research to tell for sure.

5. True or False: Larger associations spend about $10,000 more on benefits per employee than smaller associations.

ANSWER: This is false. They do spend more, quite a bit more at $7659 per employee, but not that much more. (Actual figures: Larger = $9916, Smaller = $2257

6. True or False: Large organizations spend a much higher percentage of their revenue on lobbying and legal services than smaller organizations.

ANSWER: False--another one I would have gotten wrong. They're actually about the same, both at 0.9 percent of expenses for legal services, and 0.4 and 0.3 for larger and smaller respectively on lobbying. These are two areas where I thought having a wider reach would cost more. Upon reflection, though, I could see where larger organizations may have these functions on staff rather than paying for them as services, whereas few smaller organizations would have a lawyer on staff.

7. True or False: Both larger and smaller associations average an unrestricted fund balance that is at least half of their operating expenses.

ANSWER: Thankfully, the answer is true. What I like about this question is I would have thought they'd be roughly the same, but smaller associations average 70.5 percent while larger associations are only at 58.0 percent.

You'll find the answers to this quiz an update tomorrow morning. Thanks for playing!

Oh, and the fantabulous prize for the first person to answer all of today's questions correctly: a women's XL button down shirt that staff was required to wear at a previous annual meeting. The old logo shows its age, but it's in good shape.
green camp shirt.jpg

|

May 2, 2011

Monday quiz: Overall data

The first 990 Key Performance Ratios quiz (see introductory post) looks at all the data we have from 2008 tax year returns. I'll post the answers later this afternoon in an update. The first person to answer all questions correctly in the comments section wins today's fantabulous prize: An assortment of bags from previous ASAE conferences. (Wait, make that: An assortment of BAGS from previous ASAE conferences! ... !!!)... ASAE Bags

To help answer the question, I'll get you started with a couple of facts: overall, the median total revenue was $1.03 million and the median number of employees was 13.

1. How much were total compensation costs as a percent of total expenses (using the median)?

A. 27.6%
B. 31.9%
C. 35.2%

2. When compared to the year previously, how much did overall revenue grow averaged across all associations? (Hint: 2008 was a recessionary year for many organizations.)

A. -1.3%
B. -0.4%
C. 0.0%

3. True or False: On average, associations report spending more on occupancy costs than on conferences, conventions, and meetings.

4. What is the median membership dues revenue as a percent of total revenue?

A. 30.3%
B. 37.5%
C. 39.7%

Tomorrow's quiz is going to look at comparisons between associations at different revenue levels.

UPDATE & ANSWER KEY: We had one brave guess. While you weren't exactly right, since you were the only one, I'm happy to declare you the winner and send the bags to you. Shoot me an email so we can connect: sbriscoe@asaecenter.org.

And the answers:

1. The answer is C. 35.2%. I'm personally haunted a little by this question, as it reminds me of an interview I once did with Seth Godin, and in that interview he said he thinks most associations exist so that their staffs can have jobs. Sometimes I believe it, sometimes I don't.

2. A. -1.4%. It was a bad year and revenue compared to tax year 2007 proves it. It will be interesting to see how this changes with data from 2009 (a good chunk of which is in and available in the tool) and 2010.

3. True, associations spend slightly more on occupancy than they do on conferences.

4. Reliance on dues revenue continues to decline for associations, and the answer is A. 30.3%. This is one of those trend lines that's been a pretty consistent decline over the years. It's fortuitous that associations sought to grow revenue over the years, as I think resistance to dues, or at least the way associations traditionally have approached dues, is going to increase.

| | Comments (1)

Introducing a week of Key Ratios quizzes

In a few moments, I'm going to post the first of a week-long series of posts, which are quizzes derived from the ASAE Foundation's new product: Association 990 Key Ratios. The foundation has compiled information from thousands of IRS Form 990 Records--every record that reports at least $200 in membership dues revenue and at least one staff member--which is now available by subscription, giving associations a powerful benchmarking tool.

A demo of the product was unveiled at the Great Ideas Conference at the Broadmoor in Colorado Springs earlier this year, and you can test drive the database yourself at the upcoming Financial, HR & Business Operations Conference (FHRBOC) May 12-13, 2011 at the L'Enfant Plaza Hotel in Washington, DC.

To whet the appetite, rather than just give some of the interesting stats that can be derived from the 990 data, I'm embarking on a week-long quiz. Each morning I'll put out a few questions. And I'll be giving out fantabulous prizes each day to the first person with the right answers. (Note: you might think that an adjective invented from the words fantastic and fabulous would be pretty special, but we mean it to be whatever we have that's sorta laying around.) We're going to go on the honor system here, no one who has purchased or otherwise has access to the database should give the answers. So please, feel free to offer up some guesses, and be sure to check back, especially on Friday when we will feature the Chicago association sector going head-to-head against DC-area associations.

|