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Balance Your Budget

January 1, 2007

By Carolyn Schwaar

Finance Q&A

If there’s one task many association executives feel ill prepared to handle, it’s budgeting. The legal and technical aspects of financial accounting can be tricky, and the abundance of paperwork can be confusing. RAE asked AEs to send in their financial questions and had NAR finance chief John Pierpoint offer his advice.

Q When doing a budget, I get complaints from members who misinterpret it as dues-only income and expenses. Is creating a dues-only budget and a separate affiliate income and expense budget a good solution?

A. Separate budgets are fine; however, at some point, it’s important to provide a complete picture of your financial operation, combining dues and nondues revenue streams into a clear operating summary. A dues budget may help your leadership and members understand the impact that changes in membership levels have on your ability to provide services. But it’s equally important that they understand the nondues revenues and the costs that you incur to achieve those revenues. The amount of budget detail you provide depends on your members’ level of involvement in the association’s financial processes and their financial knowledge. NAR provides detailed information on dues and nondues revenue to its finance and budget review team members.

Q. Which financial documents should Realtor® associations and MLSs (nonprofit and for-profit) share with members?

A. Your membership should always have a sense of how well the organization is doing financially. The level of detail you choose to convey may be different for members, directors, and leadership. Generally speaking, nonprofits are required to make public only their IRS 990 form. Your board should decide what documents to make available to members, but always be sensitive to the details provided relative to salaries, benefits, or competitive data on for-profit ventures.

Q. Is there a foolproof way to project cash flow with respect to dues income?

A. No, there’s no foolproof way. Cash flow will always be estimated. Your success in this area depends on your understanding of your membership trends and your local housing market. Seek out members’ expertise and experience to gain insights. Work with your leadership to find consensus on membership forecasts as you create your budgets. If you agree on membership trends, the dues revenues will be easier to track and forecast. NAR’s researchers make their membership projections based on a number of factors, including interest rates and housing demand. Then the finance committee takes the data and applies experience and history to develop a forecast.

Q. I’ve been thinking about moving to two- or three-year budget forecasting. What would be the advantages?

A. The advantage of long-term budgeting is the opportunity to plan where your association is headed. It provides a framework for proactive programming. Be sure to build into your long-range budget a periodic review or “reality check” to ensure that your long-term goals and objectives remain valid and market-driven.

Your finance committee may get a great sense of satisfaction that there’s a three-year budget out there. It’s like having a road map for the next three years. Of course, factors such as membership fluctuation, inflation, and new technology have a large impact on budgeting, so be careful not to budget so far out that the information loses relevance.

Q. How can I incorporate bonuses for myself and my staff into the budget when those are distributed after my new budget has been accepted and implemented?

A. Work with your leadership during the budget process to establish a reasonable and realistic bonus pool to provide you with the discretion throughout your fiscal year to grant amounts to staff based upon their accomplishments and achievements.

Q. Can you recommend some good ways to learn about association accounting?

A. Establish a relationship with a local CPA firm, and stay current with accounting practices and requirements. Doing so will help you understand what rules and tax laws may affect your association, your officers, and your staff.

John Pierpoint, NAR’s VP of Finance/Comptroller, can be
reached at jpierpoint@realtors.org, 312-329-8260.