Reserves play key role in associations' fiscal health. (Eye on the Industry).
Slightly more than half of associations do not have a formal reserve and equity accumulation policy or objective, according to ASAE's Industry Research Department, which collected financial data in 1999 from more than 500 U.S. associations. Of participating organizations, 49 percent did have a formal plan in place; such policies are more common in associations whose total revenues exceed $5 million. Most associations with less than $5 million in total revenues, however, have in formal reserve policies and attempt to maintain a target percentage of their annual operating budget for reserves.
For most associations (52 percent), reserves are defined as the organization's total net assets, also known as fund balance. Associations of all revenue sizes reported the median reserve target as 50 percent of the organization's total operating budget, or six months of budgeted operating expenses. In 1999, 59 percent of associations had at least 50 percent of their annual operating budget in reserves (see chart). Almost all (99 percent) reported a positive fund balance at the end of their 1999 fiscal year.
In addition to maintaining adequate reserves, having quick access to cash is often critical. Associations strive to maintain a sufficient portion of their reserves as liquid, usually defined as cash, and investments that can quickly be converted to cash. The associations in ASAE's survey reported that they set a median target of 40 percent of their annual operating budget for liquid reserves.
Reserves allow an association to make one-time expenditures to launch new programs and provide for major upgrades, such as a new Web site or membership database, as well as to ensure that it can maintain its existence and continue to serve its members through any potential future crises.
Note: ASAE's 1999 data reflect a growing economy during that year. The 2003 "Operating Ratio" survey currently being conducted by ASAE's Industry Research Department will determine the changes, if any, in association reserves and reserve policies from 1999 to 2003.
For more detailed benchmarking data on reserves or other operating ratios, call 888-950-ASAE or visit the ASAE bookstore at www.asaenet.org/bookstore to obtain a copy of ASAE's Operating Ratio Report, 11th edition. For information about the upcoming two-volume Operating Ratio Report, 12th edition, to be released in summer 2003, contact the ASAE Industry Research Department at 202-626-2847 or firstname.lastname@example.org.
Submitted by Denise Armadoros, former research associate, ASAE Industry Research Department.
PERCENT OF OPERATING BUDGET IN RESERVES Less than 20% 13.5% 21%-49% 27.0% 50%-74% 18.6% 75%-100% 16.2% More than 100% 23.9% SOURCE: Operating Ratio Report, 11th Edition. American Society of Association Executives. 2000. Note: Table made from bar graph
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|Date:||Apr 1, 2003|
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