Acronym

This was originally meant to be a comment on Joe's post yesterday on "lovable loser" programs, those programs that lose money but are too important to kill. The comment seemed too important, so I'm making it a post on its own.

What Joe makes me think about as he coins a new term, is that organizations are what they measure. Dollars is obviously a basic measurement of a program/product/service. I'm not saying we shouldn't measure financials; you obviously have to. But so often that's where the measurement stops - or maybe you measure a few other things (you know the list, recite it with me: butts in seats, total members, member retention, etc.).

I've never seen an association mission statement that mentions the profitability of the organization itself, so it's a shame when so many of our programs and products use that as the primary measuring stick. Most mission statements talk about making a profession or trade stronger, or helping those in a profession or trade be better at it. Finances and the other measurements (cue the chorus: butts in seats...) are at best distant measurements of such missions.

We could easily get one step closer by figuring out how to measure engagement. Even developing some rudimentary metrics around engagement would go a long way to killing Joe's new term - and that's my goal with this post. I think he's right, where associations are right now is calling such programs losers. But start measuring engagement and I'm guessing those lovable loser programs are actually winners, maybe big winners, in the metric that gets closer to telling you if you're being successful in working on your mission.

A couple years ago, C. David Gammel, CAE, coined the term sacred zombie cow:

These are programs, products and services that are a net negative to the company and yet are incredibly hard to kill. They no longer have a strong sponsor on the scene but still they shamble along, eating up resources.

Like a lot of great innovation, David's term was an important improvement on an already pretty good term, sacred cow, which refers to something considered exempt from questioning.

I'd like to add a third term to this set (with apologies to Chicago Cubs fans):

loveable loser: a program, product, or service that has been evaluated and deemed worth supporting despite losing money

I've been thinking about this since Wes Trochlil's Learning Lab, "Is There Money Hidden in Your Data?" at the Annual Meeting & Expo. He suggested that good data can better inform discussions about when money-losing programs should be cut and when they should be subsidized by other revenue streams.

This was just a brief point that Wes made in the session, but it added an important extra dynamic to this topic that I hadn't thought about before. The underlying point that David Gammel makes it that sacred cows become sacred zombie cows when conversations about cutting or keeping them don't happen. They become loveable losers when those conversations do happen and they're deemed worth keeping.

Those conversations aren't easy ones, though, and while it's hard enough just to initiate them, there's a good chance of getting the conversation going and not knowing how to come to a decision. Even with as much data on hand as possible, how do you weigh the value of a program if it costs real dollars but returns more intangible or indirect results? And how do you identify and separate a program's real, present-day value from long-held perceptions about its value?

A long while back, there was a great conversation here on Acronym about social media ROI. I pushed for talking about social media in terms of dollars; others argued that strategic returns (i.e., non-financial returns) should be weight just as heavily. Social media might be one of those loveable losers at your association. Others like advocacy and public relations come to mind. Maybe some publications, or maybe even some face-to-face events. Anything could conceivably be a money loser but worth keeping around for its strategic value, but it's only a loveable loser if a conscious decision has been made to keep it. Otherwise, you have no way to know if it's just a sacred zombie cow.

Making the distinction between the two may be more art than science. Data helps a lot, but (as Scott pointed out earlier this week), it might not get you all the way to a decision. I'm curious how you've navigated conversations about supporting money-losing programs, if you'd had them.

Over on David Patt's Association Executive Management blog, a recent post caught my attention: Positions not People. It's a short post, but to give the short overview anyway, he says in times of financial distress, you should rank the products and services in terms of importance to your organization and keep the people doing the most important work and lay off those doing less important work even if they may be strong employees.

It's rare that I have a completely opposite view from my association blogging brethren and sistern--usually differences are based on nuance, intensity level, or even just semantics. But I'm about 180 degrees from David on this one. Yes, use financial distress to your advantage by refocusing your organization on what really matters--but when it comes time to decide who is going to do the work that really matters, absolutely make those decisions based on the people rather than the work they are currently doing.

I think there are four kinds of employees:

1. Average or worse. Get rid of them, financial distress or not. They're not helping you. My opinion, as I've written before, is that associations do not use the hiring and firing tool to their advantage near enough. No one is striving for average; why would you tolerate average employees?

2. Good and have reached their potential. Strongly consider getting rid of them, financial distress or not. Certainly if you're laying off people, lay off these people right after the average people. In a few isolated cases, perhaps the staff person is good and has a specialized skill that would be very hard to teach or replace. Well, you have to keep that person for now, but I'd also be rethinking why I have a need for such a specialized skill and trying to develop systems, strategies, etc., to decrease my dependence on it. You know, the whole hit-by-a-bus theory and all.

3. Good and motivated to be exceptional. Keep these people.

4. Exceptional. Keep these people and, financial distress or not, push them into new areas and to try new things so they stay excited, stimulated, and motivated to continue their exceptional work for you.

Let's say you have to lay people off and you're following my advice to keep your best talent. Now let's say that some of the category 2 or 1 people are doing jobs that you've deemed essential. I say lay them off anyway. Skills can be taught. Attitude, enthusiasm, and motivation cannot be taught and in my opinion more than make up for the experience lost. The idea is take the staff in categories 3 and 4 from less essential functions and put them in more essential functions. Obviously you do this with an eye toward putting them in positions to be successful. My experience is that when you tell people with the right attitude, enthusiasm, and motivation that you need them in a certain area, that they see it as both a challenge and a vindication of the work they've previously done. It won't always work, but nothing ever does.

The way I read David's post is that he is saying don't let talent cloud your judgment about what is important to the organization. Amen. But I also think he is advocating being cavalier with that talent, maybe because of an equality ethic where all staff should be treated equally. Personally, I just think talent is too rare and I don't think the notion of equal treatment serves an organization well in this instance.

I recently interviewed Jean Chatzky, financial editor of "The Today Show" and a bestselling author who specializes in helping people get real about securing their financial futures.

She has been particularly focused on helping folks--especially women--get out of debt, identify some financial goals, and stop making money management so hard and overwhelming.

As we all witness the chaos of the debt ceiling debate on Capitol Hill this week in particular, it seems timely to talk about financial crises of a more personal nature, such as not saving enough for retirement or being so fearful of investing or doing "something wrong" that you just stuff everything into a checking account and let it sit.

According to Chatzky, who will speak August 8 at ASAE's Annual Meeting & Exposition, men and women have different challenges in terms of developing behaviors and attitudes that determine whether they are in good or poor financial shape.

"For women, investing appropriately is more difficult," she says. "For years women have been a little more reluctant about taking risks, and we need to take a certain amount of risk in our investing in order to keep pace with taxes and inflation and [to] achieve enough growth."

Men, meanwhile, often have a harder time responding to their intuition, Chatzky notes. "Listening to that gut sense and understanding when it's leading you in the right direction rather than just jumping on the bandwagon of something because it's hot [is], I think, more difficult for men."

Regardless of gender, professionals should know that associations are doing a lot of things right when it comes to helping them secure a positive financial future.

"A lot of programs that associations are putting into their retirement plans--automatic escalation, automatic enrollment, target date funds as a default--are helping immeasurably, by the way," Chatzky lauds. "They are definitely leading people in the right direction."

Now if only people could be sure that Congress is doing the same.

Read what Chatzky has to say about the debt ceiling debate and its potential impacts on your finances on her blog and mark your calendars for August 8 at 1:30 - 2:45 p.m. for her Game Changer presentation, "The Keys to Personal Financial Happiness and Success."

Nikki Jones is the director of finance and administration for the Healthcare Businesswomen's Association, and is the latest author in Acronym's Small Staff Week.

If you are a staff member at a small staff association, I don't need to tell you that you can't do it all by yourself. I've been the staff director of finance and administration for the Healthcare Businesswomen's Association (HBA) for a year and a half and I can tell you that even if you are a department of one, you'd be wise to invest in the volunteers who are your unpaid staff.

The HBA's model blends a small paid staff with hundreds of volunteers across our 15 chapters. We offer them experiential leadership, meaning they have an opportunity to learn new skills in a safe and supportive environment. That is the professional advantage of HBA membership. What that means to me as a staff member is that my team of treasurers on the chapter boards vary greatly in accounting skills, and it is my job to support and nurture each one while maintaining business accounting standards.

Some of my chapter treasurers come with years of professional finance experience, others not so much. While my job is demanding, I always make time for training and supporting my volunteers. I think spending time up front training is a far better investment than cleaning up a mess later.

A piece of advice I offer is to invest in technology. After careful research we chose a cloud computing system that offers our chapters in-depth budget and finance information that each treasurer can access from a computer. We work with a bank that offers online banking. We have just instituted an online system for ordering marketing materials and stationery. I trained staff and volunteers to enter expenses, examine budgets, and track spending as they go. I also created step-by-step guides with screen shots where needed to serve as an initial training and ongoing resource for staff and volunteers. A large amount of time went into setting up these systems, but that investment will pay off in time saved in the future.

At HBA we offer both group and one-on-one training. Our Leadership Institute, offered each fall for volunteers, enables them to start their year of service with the knowledge and resources needed for success. One part of that day of training is a session where all chapter treasurers are trained together. This is our only face-to-face formal meeting, and it is great to have the volunteers meet each other. Each month I lead a conference call with all of them to discuss issues, share best practices, and offer support. We also use these calls to celebrate successes.

Another investment I made was to provide one-on-one training via web conferencing to each treasurer. This allowed me to gage their skills and, maybe more importantly, get to know each one as a person. This rapport is needed to assure each chapter treasurer feels she can come to me with questions or problems.

When it comes to finance, I'm gentle but firm. I'm responsible for the HBA's finances, and I take that seriously. My association counts on my expertise. I need to know that I can answer every query the auditors have each year at tax time.

I'm very busy, but never too busy to add to the investment I've made in the HBA volunteers. It gives me such great satisfaction to see my treasurers grow in skills and confidence as the year progresses. Being part of a small staff association is demanding and not always easy, but the rewards are truly great.

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.

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.

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...)

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.

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! ... !!!)...

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.

Earth Day can be a fraud, a feast, or a fizzle.

It can be a great rallying date around which to publicly re-enunciate your organization's commitment to sustainability and showcase actions you've taken that back it up, or it either can be dissed as a greenwashing exercise or simply ignore it.

But are the latter two options very smart business choices with all of the studies showing the growing influence of eco-conscious consumers, the heightened watchfulness of media and citizen journalists, and the myriad hard data that have emerged about the positive ROI of a well-planned social responsibility strategy that syncs with organizational mission and core competencies?

If that kind of strategy sounds time-intensive to chart, it can be. However, it takes effort to plan any strategy, so I don't think that concern should be seen as much more than an excuse, especially when this approach jives so well with most our community's common goals of operating efficiently, attracting and retaining talent, holding tight to our budgets, bolstering innovation, engaging members, and building brand value.

It's heartening to see the many press releases from nonprofits and associations today as they urge members and consumers to switch to paper-free bill paying, plant a tree, volunteer, recycle, insulate, and more.

Less heartening is that so many associations are silent today. I promise you that no matter what industry or profession your group represents, your members--maybe not all of them, but certainly a growing percentage--are indeed moving toward greater sustainability. This is a chance for your association to be relevant. This is a chance to show value in a new way. There are serious opportunities here for any organization of any size in any location (you'll find some examples at www.asaecenter.org/socialresponsibility) to help members strengthen their businesses and professions.

So celebrate Earth Day today. Acknowledge it with authenticity. Tell staff, members, and others what you already are doing to help lighten your environmental footprint (that kind of self-audit is the first step anyway), and ask them what else you could be doing.

You may find the sustainability journey to be an enlightening road to greater relevancy.

Finally had a moment to look through the ASAE Foundation's new economy study: Associations After the Recession: Attitudes and Beliefs Among CEOs and Members, and one of the things that strikes me is how little confidence association CEOs have that 2011 is going to be better than 2010.

Here are a couple of charts from the report:

There's a definite upward trend, but I'm surprised the slope of that line is not even steeper. We're coming out of the worst recession in 90 years and only a third of association executives are expecting increased revenue from publications sales or sponsorship revenue? Put another way, two-thirds of execs have no expectation that 2011 will be the year in which they start to climb out of the recessional trough. Is this the new consumerism model? Where consumers and businesses who for the last two decades (longer than that, but excessively so in the last 20 years) overextended to have more are now content to consume less?

I'm not saying execs are wrong to think this way and to have low expectations. Here's another chart from the same report, but it reports a different study. Rather than surveying association CEOs, this study went to people who belong to associations:

As a trend, yes, it's better -- association members think their employers are going to cut back less than they did 18 months ago. But I'm kind of alarmed by a third saying association meeting attendance will be curtailed. Think about that for a second. It's already low. The economy hit rock bottom a little while ago. And a third of these people are saying they expect their companies to cut back even more. And staff travel cuts, at 43 percent, is a really big number. Again, you'd think nonessential travel would have already been trimmed.

One kind of nuts-and-bolts observation about the studies is that participation across the last three years has consistently dropped off. Clearly it's not a topic that is as top-of-mind as it was. But I'm hoping we can do another study in a year or maybe a little bit longer. Maybe after there is a little doubt there is a good recovery underway. We don't really have baselines for this study. Maybe the answers to these questions hit low barriers. Maybe, for example, at any given time regardless of the economy, there's going to be 25 percent of people saying that they expect funding for staff to attend professional development meetings is going to be curtailed. It will make interesting studies if we can hold people's interest long enough.

In honor of ASAE & The Center's Financial and Business Operations Symposium next month (it starts one month from today), we decided to give April a mini-theme: Money Month. It's "mini" because we've only got a few posts scheduled to cover the topic, but who knows, maybe by the time the month is over, it will be something bigger.

I'd rather start with something more upbeat or positive, but, well, when I was thinking about what to write, I kept falling back to an electronic mailing list discussion that took place a while ago. In it, someone asked how to account for unbudgeted spending when a need arises. CFO after CFO chimed in saying they don't, only their boards can approve new spending. It sounds to me like those are associations where new ideas go to die. So how do you balance the governance tenet of fiduciary responsibility and the need for an organization to be nimble and seize opportunity? Several ideas spring to mind:

I covered this idea before, but I think the whole notion of budgeting and accounting needs an overhaul. Rather than developing a 12-month budget 9 months before that budget starts, followed by financial reporting back based on that budget, make the whole process much more fluid. Choose shorter intervals, no less than quarterly, and use the financial reporting to create an entirely new budget that covers the next interval and projects two or four intervals into the future. Budget approval every single time.

Have a fund that is X% (2 or 4 maybe?) of your operating budget that the board earmarks for unbudgeted items to be used at the discretion of the CEO. The smart association will develop a system and culture for using this money and assessing the results. The catch: There should be a policy of some sort that says this money is not the first thing chopped if financials are below budget. Otherwise, it will just get chopped most years.

I'm sure there are plenty of other ideas about how an association can have the financial flexibility to pursue new ideas. Here's what not to do:

Don't use gimmicks or tricks or cheats. I know of examples where new ideas can find funding as long as an equal amount is taken away from something else. Even if you're transparent about it, you're taking the fiduciary responsibility away from the board.

Second, and this is the biggest sin to me, don't use the approved budget excuse to silence new ideas. If there's a reason the organization shouldn't do something, then use real reasons. No one wins, no one learns, when talk of a new idea that needs funding is stopped dead by saying it's not in the approved budget so we can't do it.

ASAE & The Center just released its latest economic study, this one features results of a survey that generated 960 responses, each from a different association, conducted earlier this year. The survey form duplicated the questions asked in the Spring of 2009, providing a nice comparison and benchmarking tool. A few of the things that interested me:

• It's interesting that in a lot of areas in 2009, execs thought the economic climate would have a worse affect than it actually did have. These areas include sponsorship, fundraising, and annual meeting-type events.
• Where execs were most wrong, though, was predicted in the first economic study we did after the economy soured in early 2009, when we got responses from 8,500 members of 97 diverse associations. The data from that study suggested that there would not be a mass movement from face-to-face meetings to online events. This was contrary to the expectations of association execs, 61% of whom were expecting revenue from online education to increase. In actuality, only 33% reported in 2010 that such revenue had increased.
• There's a striking dichotomy in the 2010 data: 62% of execs think overall revenue will stay the same or increase in the next 12 months. However, only 48 % think revenue from membership will stay the same or increase. It's worth watching if execs think there is a fundamental shift away from membership as a revenue stream.

The desire to focus on “doing good” is a motivating factor that draws many people into association work—and that is clearly a strength; but association executives would do well also to realize that there is nothing crass in using money as a way to measure effectiveness—namely:

- Know that flat or declining revenues may be a sign that something is fundamentally wrong with your program, product or service. This is a warning bell--an indication that a thorough audit is needed of your marketplace, including: a customer satisfaction survey; benchmarking against the competition (if you do not know who your competition is, then that is another problem!); and a trend analysis of the needs of your target market(s).

- Understand that profitability is a measure of efficacy. If your revenues are rising but so are your losses, then either your programs are being mismanaged or your pricing is wrong. In such a situation market success in the form of increased sales can actually destroy your organization if it is not efficiently structured.

- Know that customers expect to get what they pay for. People the world over are prepared to pay for quality and inherently question the value of anything they are offered for free or at low cost. This is particularly true the more things are critical to us. What person needing heart surgery will feel entirely comfortable going into an operating room knowing their surgeon was the least expensive that could be found? Focus on quality and price your product or service accordingly—this is what your customers expect.

An association’s role may not be “just to make money,” but money does serve as a good tool by which to measure quality, effectiveness and efficacy. Such thinking has always been part of for-profit management; and if nonprofits are to hold their own in this increasingly competitive environment they will do well to adopt it! Do you agree?

Recently our Executive Committee asked that we draft pro forma budgets not only for 2010 but also 2011 (our fiscal year is the calendar year). They requested that we devise two different scenarios for the two-year time period: one being an optimistic case where we envisioned membership would recover almost to where we were in 2008 by 2011 (our membership took over a 15% hit this year) and meeting attendance would climb back to near “normal” levels by then; and the second being a pessimistic scenario in which membership and meeting attendance remains rather dismal.

(Note: Our association has returned positive returns for each of the past 7 years with a forecasted loss for 2009 forecasted to be at about 5% of operating budget.)

This exercise forced us to think through the ramifications across all our programs and services and showed us what the net impact to Cash Flow and subsequent Reserve Balances would be under the two scenarios (not surprisingly, under the Pessimistic Scenario we projected operating losses for both years, whereas under the Optimistic Scenario a nominal loss next year and then a profit in 2011).

While it is very challenging to project membership and meeting attendance particularly in “unusual” times such as these, the exercise was beneficial in several ways:

a. It gets the news out in front of the board well in advance and gets them thinking about the “what if” scenarios and plausible implications to our budget

b. It forces them think through what level of operating losses they can live with and whether additional cuts might be warranted (we provided additional cuts which might be considered, some of which would affect some of our programs & services)

c. It also opens up dialogue with the board to think strategically about which legacy programs can in fact be disbanded, and offers an opportunity to engage in a frank discussion about new sources of non-dues revenue as well as ways to re-invigorate membership recruitment.

Has anyone been through similar exercises with their boards?

Went to a session on lessons from the Madoff scandal (at ASAE & The Center's FBOS) and while nothing can ensure you'll avoid the next Madoff, there are some smart practices to enact. Chiefly, have separate investment advisers and investment managers.

Also check out these sites to perform a little due diligence on your financial managers:

www.sec.gov/investor/brokers.htm
www.finra.org/investors/toolscalculators/brokercheck
www.paladinregistry.com
www.investorwwatchdog.com

We received a recent request to our Knowledge Center about the ramifications of dissolving an association’s 501(c)3 subsidiary such as a foundation. It coincided with a discussion I’d had recently with two fundraisers who said they were struggling to generate revenues for their associations and had “all but given up” on raising money for their subsidiary foundation as well.

Obviously, the Internal Revenue Service has a number of guiding documents about closing down a charity, including “Dissolving a 501(c)3”, IRS Rev. Proc. 82-2, "Life Cycle of a Private Foundation," and "Termination of Private Foundation Status."

If you subscribe to The Chronicle of Philanthropy, you can access a June 1, 2006, article called “Engineering a Foundation’s Demise,” or if you receive Trusts & Estates, you can look up the more recent article June 2008 article, “Breaking Up Is (Not So) Hard To Do.”

GuideStar is reporting that 500,000 nonprofits could lose their tax-exempt status in May 2010, if they haven’t yet filed the required Internal Revenue Service Form 990-N and continue to not do so for several more years. 2008 was the first year when this specific set of small nonprofits—groups that didn’t meet the income threshold for filing an IRS Form 990 “or its variants”—were required to file a new IRS form, according to the Pension Protection Act of 2006.

“Nonprofits whose exemptions are revoked will suddenly be required to pay federal income taxes -- and subject to financial penalties if they fail to do so. Hundreds of thousands of charities … could find them themselves no longer eligible to accept tax-deductible contributions,” Guidestar states. “Nonprofits that wish to have their exemptions reinstated will be required to re-apply to the IRS for tax-exempt status, a process that can take several months.”

"If you volunteer with, work for, or give to a smaller nonprofit, make sure its leaders know about the 990-N,” urges Bob Ottenhoff, GuideStar president and CEO. "… Smaller nonprofits make up as much as three-quarters of the nonprofit sector. They are the local animal rescue societies, the neighborhood groups that tutor elementary school students, the all-volunteer organizations that drive cancer patients to chemotherapy. Collectively they have a tremendous impact, and society will be the poorer if these organizations lose their federal tax exemptions.”

I've been collecting a bunch of links to share with you:

- Did you see the very interesting article in the Wall Street Journal on why you should get rid of performance reviews? I don't know if I agree (although Scott might), but it's definitely a thought-provoking read.

- Elizabeth Weaver Engel started a good discussion about flexible schedules.

- Kristin Clarke's post on associations and the financial crisis sparked some good posts by other bloggers: Bruce Hammond lists some questions we should be asking right now, Caron Mason suggests ways associations can help members impacted by the economy, and Tony Rossell points out that association membership can be a form of unemployment insurance. In addition, Kerry Stackpole writes on leadership in uncertain times

- Kevin Holland and David Patt respond to Scott Oser's post on whether or not attendees at association meetings are really ready for new meeting formats. Both of them raise important points about the negatives of some more interactive education sessions.

- David Patt also points to an interesting blog post, where the blogger in question and her commenters discuss the pros and cons of joining a professional association. It's an interesting glimpse at a potential member's thought process.

- Wes Trochlil is gathering information on associations that use their AMS successfully.

- Lindy Dreyer suggests that both age and generation are less important than we often think.

So many associations are voicing opinions, outrage, and ideas about the proposed mega-billion-dollar federal bailout that I can’t begin to share even a nugget of consensus here. However, amidst the exclamation points, I did find one helpful resource that simply lays out the problem in a coherent, calm fashion.

Kudos to The Century Foundation and economist and senior fellow Bernard Wasow for “Ten Questions and Answers About the Housing Crisis and the Financial Bailout—In Plain English.” With such public confusion about the crisis, a short, straightforward piece like this can have tremendous impact.

As a consultant and a former membership, marketing and circulation director at a number of DC metro based associations I have always been exposed to RFPs (requests for proposals). While I was working at an association I sent out a number of them for various services I was in need of at the time. Now that I own my own consulting firm I get sent them all the time. I have to tell you I am happy to be included on RFP distribution lists but the more I receive the more I wonder if it makes sense for me to respond and more importantly for associations to send them out.

Many of the RFPs I receive are overly general so there is no way that the proposals an association gets back can be compared and contrasted so that the association can make an educated decision on the right company for the job at hand. They tend to be so broad in the description of the services they are looking for that consulting companies, or vendors, who receive them can interpret them a million different ways which again leads to proposals that are unable to be compared and contrasted so that the association can make an educated decision on who best will fill their needs. In response to this issue I have seen associations start allowing recipients to ask them questions or email questions that the group then answers and distributes to all RFP recipients. Is this a good use of time for either side?

Almost all of the RFPs I receive do not include a budget range. I understand why an association would choose not to disclose that information but if companies that submit the proposal are not in the same price range how can an association decide which company will perform best under those price restrictions?

Finally, I still receive RFPs that require proposals to be submitted in hard copy? In the digital world we live in I don’t understand this. If the hiring decision is going to be made by committee isn’t it easier to get a pdf or a Microsoft Word version of the proposal so you can simply attach it to an email and send it to as many people as necessary.

There are numerous challenges with the RFP process and that is why I am very selective about the types of RFPs I respond to and know many other people who are the same way. I also have heard that there are many vendors who don’t even respond to RFPs any longer, not because of arrogance, but because they don’t find it a smart business strategy to put in the time and effort required to do a good proposal just so they can be compared to a large range of other vendors who interpret aren’t even in the right price range, offer completely different solutions based on their interpretation of the RFP, etc. etc.

Is the RFP something we should continue to use in hiring service providers? Or should we ask our network for referrals of 2 or 3 potential partners that can fulfill the need that we have, sit down with them to have an open discussion about what it is we are truly looking for and then have them submit a good proposal based on what both sides now know is needed?

The Mississippi Emergency Management Agency (MEMA) is urging businesses and organizations in the impact area of Hurricane Gustav to execute their emergency recovery plans, which should include the following (note: All associations and nonprofits across the U.S. would be well-served to include these in their own disaster plans.):

· Phone-calling trees and/or a phone recording for employees that keeps them informed during an emergency and provides clear direction for whom to speak with if they have problems.
· An out-of-town phone number that allows employees to leave a message telling organization leaders whether they are okay, where they are, and how they can be reached.
· A clear plan for employees with disabilities or special needs that was created with their input, so all needs are addressed during a disaster.
· Payroll continuity processes and communications.
· An evacuation plan for records, computers, and other stuff from your office to another location.
· Procedures for establishing the conditions under which the business/facility will close.
· Emergency warnings and evacuation plans and other disaster processes. Practice these if possible.
· Employee transportation plans, if appropriate.
· Plans for communicating with employees' families before and after a hurricane.
· Purchase of a NOAA weather radio that has battery backup and a warning alarm tone.
· A process for protecting any outside structures or equipment on your property. Windows, too, should be protected with plywood.
· Knowledge of whether your business phone system works even without electricity. If not, add a phone line that can do so.

You can find other disaster planning articles and information on ASAE & The Center’s Web site, but here are some to get you started:

Quick Tips Regarding Disaster Planning for Hosted Solutions

7 Helpful Disaster Planning Sites

What If? A Guide to Disaster Preparedness Planning

The IRS just released the draft instructions for Form 990. Here's ASAE & The Center's notice about it:

The IRS this afternoon released draft instructions for the redesigned Form 990 that tax-exempt organizations will file beginning with the 2008 tax year (returns filed in 2009). The draft instructions can be downloaded from the IRS website here: http://www.irs.gov/charities/article/0,,id=181091,00.html .

While the new Form 990 was finalized in late December 2007, the IRS is seeking comments on the 2008 Form 990 instructions to ensure they address the needs of filing organizations. Comments are due by June 1, 2008.

The IRS is requesting comments on all aspects of the draft instructions, including suggestions for further reducing the complexity of the form and the burden on filing organizations. At the beginning of the instructions for the core form and each schedule, the IRS has highlighted specific areas where comments might help. The agency indicated it's particularly interested in comments on the definitions in its glossary, and the instructions for significantly revised or new areas of the form such as compensation, governance, foreign activities, disregarded entities and joint ventures and hospitals. As it did with the Form 990 last summer, the IRS plans to post all comments on the instructions on its website (www.irs.gov).

According to the IRS, the draft instructions are intended to provide specific and clear guidance for completing the core form and each schedule. This approach has increased the length of the instructions, but the IRS believes the new content will make it easier for organizations to complete the form. The IRS has included a number of new tools to enhance compliance and promote more uniform reporting, including a comprehensive glossary of terms; a sequencing list to help organizations determine the order in which to complete sections of the form; and a compensation table to help organizations determine how and where to report compensation data.

ASAE is in the process of reviewing the draft instructions and welcomes feedback from the association community as we work toward submitting comprehensive comments prior to June 1.
For more information about the new Form 990, please contact ASAE's Public Policy Division at 202-626-2703 or email us at publicpolicy@asaenet.org.

Sixty-two percent of Americans believe the typical nonprofit spends more than is reasonable on overhead expenses (according to an Ellison Research survey of 1,007 U.S. adults). But a Meyer Foundation study of 6,000 “next-generation leaders”—staffers of all ages who have committed to the nonprofit sector and who are actively developing the skills needed to hold management positions—found significant concerns about salary and compensation.

When those future leaders consider spending the rest of their careers in the nonprofit field, the following percentages of respondents said that

• I will not make enough money to retire comfortably: 48%
• I will not make enough money to support a family: 37%
• I will not make enough money to pay off all debt in a reasonable time frame: 24%

These studies are both aimed at the philanthropic community, but I've seen similar concerns coming from professional society members too, especially when the industry the society represents falls upon hard times. What can we do to educate donors, members, and stakeholders so that they can understand the difference between investing in the future of a nonprofit or association and wasting money on unneeded overhead expenses? (With the caveat that we as staff should always be on the lookout to cut unnecessary overhead, like any business would?)

Notes:

• Model based on Boston Consulting Group’s “Growth-Share Matrix”
• To use the model, analysts plot a scatter graph using net annual margin (green) or subsidy (red) to scale diameter of each program, product or service
• Programs illustrated are for example only & do not represent actual margin or performance
• 1=Stars (High investment brand leaders-surplus capital); 2=Questionable (requires major investment-low results); 3=Cash Cows (Low investments-surplus capital); 4=Retire (limited investment-limited results-beware expensive/risky turnarounds)

Some of you share my long-term interest in annual evaluation of association programs, products and services (PPS). The reason for an annual evaluation is simple: evaluation looks at PPS performance and life-cycles, and provides the basis for rational decision-making about which PPS should continue and which should be retired.

Annual evaluation is also important because it is one method to release precious resources and capabilities to support innovation and consistent annual new PPS development. The old association adage is true for many of our associations, “If something new is to be added to the wagon, then something old must be removed.” The adage is true because it’s not often that our associations have on hand substantial unused capacity that can be devoted to new PPS development. And our ability to simply go out and increase our capacity to meet new opportunities is generally limited. There’s little venture capital available for non-profits.

Now, one could argue that innovation will let an association do more and better. But there is a finite limit as to how much one can and should try to stuff into a 5-pound bag, if you get my point. Many of us are past our organizational bag limit, and innovation just to add more to an overloaded bag is not the answer.

Thus, annual evaluation is important. But it’s hardly simple. The challenge is that associations generally provide PPS in two very different categories: 1) Mission-focused activities which are often subsidized in whole or part; 2) Business operations that provide the net margin necessary to subsidize the mission-focused activities. Both categories of activities support the organization’s overall mission and both categories reinforce and strengthen one another. And as many of us have learned the hard way, there is no mission without a margin. Evaluation of these two different categories of activities, however, can be challenging, since they are often so different. Targets and measures used to measure subsidized activities, for example, often are not the same targets and measures used for margin-producing activities.

Mark Golden and I had an interesting discussion of PPS evaluation of these two categories of activities in the “Driven by Mission Not Money” thread on the ASAE & the Center iCohere Measures of Success Strategy Lab web site, in which we both concluded that annual evaluation should be based on how the PPS is actually performing. Mark rightly commented, “It isn’t good enough to have good, mission related intentions, (evaluation should be based on) how well it (PPS) achieves mission related ends.” Said differently, evaluation of all activities should be based on results.

This has led me to develop the chart above for comment and trampling action. It uses some typical ASME programs and hypothesized data to illustrate how the approach might (or might not) work. Would such an evaluation process work in your organization? Could it be refined and made more useful? Inquiring minds want to know…I look forward to your comments.

There is one thing that people just absolutely need to give up. And that is thinking of how ideas or opportunities or issues will affect their budgets.

I'm not saying don't think about finances at all. Far from it. But as a senior member of staff, it is too common to think of budgets under your control first. "Will it make my department's bottom line better or worse?" I've seen people whose judgment I value a lot fall into this trap. If we are to truly move our organizations forward, this hard evidence of the silo mentality must be cast aside. When assessing anything — idea, problem, anything — use your mission first. A close second consideration is financial, but the only financial assessment that matters is the impact on the organization's overall bottom line.

Many times I've seen and heard of good ideas being beaten down, because the expense may come out of one side of the budget and any expected revenue comes out of another. When I've experienced these conversations, I've always thought they were so petty. But I've come to see them for what they really are: highly destructive to the health of the organization.

And CEOs—you're not off this hook. True, I'd hope that any CEO would look at the organization bottom line rather than how individual programs are affected. But if your senior people are going to overlook the affects on their budgets, your culture and practice must be that senior management is not held accountable for the financial performance of individual programs. Instead, senior management should be held accountable for the whole organization's bottom line. It seems to me that's the only way to have a healthy, functioning senior team.