Budget cuts can come fast when revenue plunges, as shown during pandemic, but forecasting can keep groups positioned for recovery

O'Neil

"Deficit" doesn't have to be a bad word.

It may be written in scarlet letters as far as your board is concerned. But offering voluntary leaders a multiyear financial picture—and sketching an end to the red ink—can help avoid knee-jerk budget cuts that may be penny-wise but pound-foolish.

Taking a longer view has been useful for Peter O'Neil, an association veteran now in his second top leadership role as CEO of security-industry professional society ASIS International.

"I've always been a three-year budget guy," O'Neil told CEO Update. Some deficits can be foreseen—and may even be part of a plan—while others can't be predicted.

COVID pounded ASIS's bottom line last year as its annual meeting went virtual. From net meeting revenue of $7 million or more prepandemic, ASIS ended up losing about $4 million on the event, for a swing of $11 million, O'Neil said. This year's meeting Sept. 27-29 in Orlando will be hybrid, and ASIS projects a loss of as much as $2.5 million. ASIS reported revenue of $27 million in fiscal 2019.

"If you're not forecasting three years out right now, how do you know when you're going to get out of COVID?" he said. "For ASIS, we know through our forecasting that we are likely to get back to revenue positive" in two years.

"We believe that based on data and a little bit of crystal ball," he said. Last year, the association established key performance indicators to gauge recovery from the pandemic revenue loss. "We keep meeting those KPIs, which continues to tell us that we are notionally correct," he said.

O'Neil traces his belief in multiyear budgeting to a CFO he worked with at the Produce Marketing Association 25 years ago. Farsightedness also helped O'Neil and his board make appropriate budget adjustments when he was executive director of the American Industrial Hygiene Association, a position he took in the depths of the 2008-09 financial crisis.

"The reasons you forecast are as much about what you think is coming—and how do you make good decisions right here for this point in time—as how do you position yourself to take advantage of the recovery?" he said.

Perrine

Informed discussions

The Auto Care Association and the Virginia Society of CPAs also employ multiyear budget forecasts. (Auto Care Association CFO Nathan Perrine is a member of the VSCPA.)

Like O'Neil, Perrine stresses that the process is about forecasting—the board still approves budgets one year at a time. The forward projections are not voted on by the board.

"Its value was demonstrated in our management of the treasury" when the pandemic forced cancellation of the trade show co-owned by the group in 2020, Perrine said.

"With the COVID environment, things have changed with the trade show, of course," he said. "Whether that's an insurance payout or a cancellation, with all our events, things have changed.

"So what we have done is we've tried to model what the current year looks like, and what the future years will look like for the trade show, and what kind of cash flows we could expect in the future," he said.

"And the discussion was then, ‘How do we manage our cash in the meantime, to get us through this dip until the profitability or the normal revenue streams resume?" Perrine said.

The association tapped its line of credit.

"We do have a reserve policy, and it mandates that we carry a minimum level of reserves," he said. "Future projections of our revenue and expenses helped inform our conversations around that policy, and how worried we should be about our level of reserves."

A multiyear picture can forestall or limit immediate budget cuts—but revenue modeling cuts both ways, both O'Neil and Perrine said. The long view may suggest that losses will continue for an association, or for one of its programs. In such a case, cutbacks would be called for.

Perrine said multiyear budgeting is most useful for associations with large and potentially variable nondues revenue, and less so for groups with steady membership income.

Flip the scenario

At VSCPA, Vice President of Finance and Administration Beth Bickford sees forecasting as a planning tool with which the association can compare different scenarios. Professional education is a big part of the group's revenue.

VSCPA has been using multiyear budgeting since 2009.

"We use it to look at, ‘What if we were all online? What if we were partially online?' And we can run a variety of scenarios and run them through the multiyear budget to see how that impacts us in the in the coming years," Bickford said.

"And it's pretty easy, the way we have it, to flip back and forth between one scenario and another and see the impact.

"We'll look at large capital expenditures and see when the funds will be available for that, and then what kind of time horizon can we invest our funds in?" she said.

"We've really found it invaluable, and we've gotten more sophisticated as we've gone along," Bickford said.