Money Matters
Finance Committee Meeting Review
The Finance Committee conducted its fall meeting at the association headquarters September 27, 1999. The agenda included the following topics: management letter review; 1999 financial report and budget review; 1999 operating earnings; FY 2000 budget; cost per member statistics; financial forecasts; fund development; investments; independent auditors; and unit financial reports.
The bulk of the meeting was focused on the review and approval of the FY 2000 Draft Budget.Staff concentrates time and effort to produce shadow budgets in developing the budget.In the most basic terms, shadow budgeting entails the development of multiple budgets for each program area. The FY 2000 Draft Budget contains pieces of each of the following scenarios.
Current Reality Budget: How we typically budget--using up-to-date financial information and program plans (both short-term and long-term) to develop a well-thought, realistic budget based on specific goals and objectives. The goals and objectives were outlined in the Association Program Plan and the Long-Range Financial Plan as approved by the Board of Directors in June.
Best Case Scenario Budget: Incorporates staff's operating principle of stretch. This is where we dream if there were additional funds (i.e., promotions, technology, etc.) or other resources available. There must be a direct benefit in allocating additional funds or resources (i.e. increased income, or "x" percent more product to benefit the membership, or public relations value). We also examine the impact the dreaming will have on the organization as a whole. For instance: Having $10,000 of additional promotional dollars might yield $50,000 of new income. We also examine the impact on other program budgets and staff resources (i.e., accounting, mail, fulfillment, technology requirements, etc.).
Worst Case Budget Scenario: The contingency plan for the tough times when income is down and/or there is an unforeseen major expenditure in a program area or activity. We utilized the worst-case scenarios in our financial contingency plans over the past two years when the Annual Conference registration figures fell short of budget. Having the base contingency plans in place allowed for more immediate implementation and more effective financial management.
The FY 2000 Budget includes a total gross income of nearly $9 million. This represents a thirty-one percent increase, or $2.1 million, over the FY 1999 Budget. This is due primarily to the increased projected income in the areas of Advertising, Annual Conference, and Global 2000. The FY 2000 Budget also includes the mandates from the Finance Committee's long-range financial plan: increased income from conference and educational registration fees, shipping and handling fees, exhibit booth fees, advertising rates, career services employer fees, and inter-library loan fees, as well as the investments in professional development and technology.
The FY 2000 Budget includes the strategic priorities in accordance with the 1999 dues increase proposal and the priorities established by the Board of Directors primarily in the following areas: technology, professional development, public communications, leadership services, governance, and research.
Last January, the Board of Directors accepted the following generic financial assumptions which have also been incorporated in the FY 2000 Budget:
• The Urban Consumer Price Index is projected to rise approximately two percent. The AIMS Association Financial Index is projected to increase near four percent. This will relate to an across-the-board increase in operational expenses. Growing U.S. trade deficits will actually help hold down inflation and interest rates.
• Staffing costs will increase by seven to eight percent to fund the salary administration plan as approved by the Board of Directors, and will include the expansion of outsourcing.
• Legal and other professional services will continue to rise at a rate of five to six percent.
• Travel and lodging costs will continue to increase five to eight percent.
• Further technological advances and the continued implementation of the virtual association will enable the association to provide more products and services in the digital format, offering potential sources of additional revenue. However, the initial period of changing any delivery method causes uncertainty. Staff will be faced with offering both digital and print formats in undetermined quantities as the initial demand may be somewhat vague.
• The growth in the membership dues base is projected at two to three percent, with a modest projected increase in income of approximately $25,000. Programmatic costs will increase to serve a growing membership base.
• SLA's international interests and exposure will continue to increase (especially in relation to Global 2000). This will create greater demand for the development, implementation, and delivery of products and services to a growing international membership.
The budget includes an increase in the net membership income of more than 13.5 percent as approved by the Board of Directors at its June 1999 meeting. A strong emphasis will be placed on member retention and international recruitment for 2000. The ratio of dues to non-dues income for FY 2000 is 22 to 78, as reflected in the budget (versus 27 to 73 in 1999). The five percent change for 2000 is representative of the significant increases in non-dues revenue activities which are out pacing the increases in dues revenue. As stated in our AIMS reports, this is cause for concern. The Finance Committee will continue to examine the revenue ratios as part of its routine fiscal monitoring and long-range planning.
Some other significant highlights include:
The bottom line in the Serial Publications program has improved 178 percent over FY 1999. This is due primarily to the increased advertising income, as well as cost containment in the production and delivery of both Information Outlook and Who's Who.
The overall profit margin of the Annual Conference has increased forty percent as a result of several factors. The conference is expected to draw record-breaking numbers of registrants, as well as the largest yet SLA exhibit hall. The number of major partners providing significant sponsorship revenue and significant increases in advertising income also contribute to the healthy bottom line.
The Professional Development budget projects a 157 percent positive change over 1999 through the re-vitalization of the program. The long-range financial plan called for a $50,000 investment into the research and development of new and improved educational offerings. The initial outcome of such investment shall yield more than $130,000 of additional net income for FY 2000.
There is an overall seven percent cost increase in the travel budgets throughout the various programs and activities, as an identified trend in a recent issue of The Kiplinger Washington Letter and as one of the 2000 financial assumptions accepted by the Board of Directors.
According to the Association Information Management Service (AIMS), associations with external professional services which are a higher percentage of total expenses usually have a higher level of productivity. Utilizing external professional services is a good way to stretch the capabilities of staff and to meet the special and/or episodic needs of the Association without a long-term staffing commitment. The FY 2000 Budget incorporates outsourcing in the following areas: advertising and list sales, staff recruiting, insurance, payroll, investments, technology, membership recruitment and retention, educational development, logistics, travel, media placement, editing and design, etc.
The Finance Committee will hold its informal winter meeting later this month to discuss financial and operational benchmarking. The spring meeting will be focused on the 1999 audit report and long-range financial planning.
For more information, contact Ruth Arnold, Ph.D. at Ruth@sla.org.
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