By Jeanne M. Dee, CPA, CGMA
For associations, recent shifts from the physical space into the digital have brought a serious blow to their highest revenue stream: in-person events, trade shows and conferences. Nearly 60% of association executives report having canceled or postponed events as a result of the pandemic – often incurring additional loss due to cancellation fees, ticket refunds, lost exhibitor fees, and more. At the same time, the function of associations as a source of networking, support, and connection for their industries makes them more valuable than ever to their members in a landscape where disconnection is ever-present. Nothing beats being able to pick up the phone and get advice from someone who “gets it” – especially now.
This seems to portend the triumphant return of the association. It also adds additional pressure to associations already struggling financially: They must provide value to members in innovative ways while balancing the in-person/virtual hybrid environment 2021 demands.
Challenges Faced by Associations
For years, associations have been consulting with their advisers and accountants on issues like member retention, relevancy, and ancillary revenue; today, the effects of the pandemic have exaggerated some of those concerns and completely flipped the script on others:
- Cash Flow: Aside from membership dues, meeting and convention registration fees are the highest source of revenue for associations. Although more than 65% of association leaders reported a projected revenue loss of at least one quarter of their total budgets in 2020, they were previously ineligible for financial support like PPP Loan funding. Thankfully, things are looking up with the passing of the most recent COVID-19 relief legislation, which expands PPP loan eligibility to qualified 501(c)(6) organizations.
- Cybersecurity: When the onset of the pandemic swept a critical revenue stream out from under them nearly overnight, associations had little choice but to try to take as many events virtual as possible. With this switch came new and heighted security concerns. Member privacy has always been paramount for associations; in a virtual setting, with members logging in from multiple locations and conveying and submitting information through digital channels, ensuring the security of everyone involved has become an even greater concern. With additional cybersecurity requirements come additional costs, creating a need for funding that associations haven’t had access to.
- Relationship Management: Simply converting events from one format to another isn’t enough. When events go virtual, it’s more than the literal physical connection that is lost. There is also a loss of opportunity: no chance for water-cooler small talk, no chit-chat over dinner, no truly natural moments for good old fashioned getting to know one another. For associations, this has been a two-pronged challenge: how to make sure virtual events are still providing networking and support value for members, and how to maintain close relationships with members and other stakeholders when those in-person moments have been removed from the equation.
Now, the unique positioning of industry and professional associations brings both challenges and opportunities. Associations have the chance to play a key role in providing the industry-specific peer support that professionals crave, but it will require a strategic approach.
Considerations for Associations in 2021
With vaccines being distributed and a positive global economic forecast as the U.S. heads toward economic reopening in 2021, businesses and organizations can approach this year with a more hopeful eye, as market forces give them a chance to breathe after months of strategic pivoting and recurring uncertainty. For associations, this means an opportunity to rebalance their sheets and consult with their advisors and CPAs on reducing spending and recovering lost revenue. It also means time to take a step back and proactively plan for what’s ahead:
- New Funding Opportunities: In late December 2020, Congress voted to expand PPP loan eligibility to qualified 501(c)(6) organizations. This opens up new opportunities for industry associations to balance some of the revenue loss experienced due to canceled or postponed events. Associations should discuss funding opportunities with their accountants, who are already well-versed in the PPP loan program for their charitable nonprofit clients and can help them apply for this funding.
- Hybrid Models: Associations can expect more fully virtual meetings and trade shows, along with hybrid online/in-person events. They need to be careful to not silo members and must be creative in allowing opportunities to promote programs across audiences, no matter the format of attendance. Creating an integrated member experience will be key to maximizing value.
- Increased Spend: Integrated programming will also give associations an opportunity to marry revenue streams, which will be crucial as they continue to take on an increased tech spend for things like cyber security, virtual communication tools, and more. Associations should consult with their financial advisors on ways to curb these added expenses with strategies like increased event sponsorship opportunities and applicable loan and credit programs.
- Regulatory Issues: Associations also need to consider ongoing regulatory and compliance matters, especially as they pertain to virtual meetings and shows. For example, the IRS has safe-harbor provisions in place for in-person meetings and trade shows, so associations that follow these provisions can feel confident these events are not subject to Unrelated Business Income Tax (UBIT). However, the changing format of these meetings calls into question whether the safe harbor provisions still apply. Also, many states are still evaluating and changing their nexus rules with regard to activities conducted at conferences and trade shows, a result of the landmark Wayfair vs. South Dakota decision. Associations should consider careful consultation with their CPAs and attorneys to mitigate any overlooked risks in these and other areas.
- Intentional Events: As in-person events begin to make a comeback, associations should thoughtfully consider how they can optimize these events to create extra time and space for small relationship-building moments between attendees. After so much time spent social distancing, members will be placing more value on these opportunities for personal connection than ever.
- Relationship Nurturing: Working with other professional advisors to relay information and resources to members will help associations emphasize their value and nurture member relationships. Associations should also consider strategies like trial memberships to attract new prospects.
- Privacy Considerations: Continued virtual meetings and events will mean continued increased privacy considerations for associations. Associations must review and update their privacy standards to ensure the protection of sensitive member data when information is being shared virtually.
Despite the challenges they have faced in an increasingly virtual landscape, associations are more important now than ever. This year finds members hyper-focused on two of associations’ most defining functions: connection and opportunity. Professionals in every industry are both open to and eager for collaboration, and associations are in a unique position to create valuable spaces for members to connect. After months of distance and uncertainty, now is the critical comeback moment for associations. They must leverage the opportunity to optimize and emphasize the value that only they can provide.
Jeanne M. Dee, CPA, CGMA, is the audit and assurance practice leader for the not-for-profit group at Anders CPAs + Advisors, where she specializes in audits of financial statements for not-for-profit organizations, government entities, employee benefit plans, and closely-held businesses. A member of the firm’s CARES Act Research and Response Team, she advises not-for-profits the latest legislation on COVID-19 relief, including the Paycheck Protection Program. Jeanne enjoys working with business owners, executive directors and board members to help them better understand the financial reporting process.
Photo credit: iStock.com/Ivan-Balvan