At the Academy, the budget is an important part of our organization’s plan that helps us refine our goals. As a board, we have the fiduciary responsibility to present both a timely and accurate report of the Academy’s priorities, objectives and goals, expressed in financial terms, that compels us to use funds efficiently1. The process throughout the year is arduous in that an outline of future activities is necessary. Our staff and finance committee constantly review and revise line items to assemble a final budget for the next fiscal year. This process is made easier for the board and all of our members to fully understand by a highly skilled financial team lead by our Deputy Executive Director of Finance and Administration, Rich Jones. Tim McMahon, secretary-treasurer, leads our finance committee that continues to carefully review and revise our budgets.
This month, I’d like to share some of the particulars of what goes into our budget planning and its detailed management throughout the fiscal year. Each year, the process starts early—our staff and all committees, Sections and SIGs submit the anticipated funds that are needed for the fiscal year (July to June). The staff also propose budget assumptions based on published cost of living figures and historical AAO-specific data, which the finance committee and board review, edit as needed, and adopt. Then historical references come into play as we look at the past year’s actual revenue received compared to actual expenses. Next, we inquire what goals each group has, and take a look at future activities for the next budget’s projections.
Decisions on the expense side are easier to anticipate than predicting expected revenue. For example, an anticipated deficit was predicted in the last three fiscal years. Fortunately however, our revenue exceeded our expenses in each case by a substantial amount (approx. $200,000 in the most recent year) mostly due to robust meeting attendance that exceeded our wildest expectations. In addition, investment income has been fabulous in at least two of the last three years.
The good news is our current reserves to expenses ratio/percentage remains strong (15-16 months of operating expenses in reserves). At one time not so long ago we were operating at a dangerously low 10% level. However, after looking at five year projections with different forecasting models, the results show that we may fall significantly below the ideal 12 months of operating expenses in our reserves after just two budget cycles, even with an assumption that our revenue continues to grow. Expenses continue to increase annually at a faster pace than revenue for many reasons. Should the current projection models hold true, a plan will be put in place to increase revenue in the future, such as raising annual meeting registration fees and/or increasing dues at timed intervals. Obviously reducing expenses has programmatic implications, but may be necessary as well. Dues and the annual meeting cost to attendees have only been increased once in the last 10 years.
Fiscal year 19 budget (FY19) will unfortunately show an anticipated deficit again ($380,635). Let’s hope we have underestimated the revenue for FY19. We will continue to work hard on all fronts to provide the most efficient and meaningful programs for which the Academy has been known for several decades. The right budget balance has to be maintained. So far, by most measures, I think we’ve been able to do that. The board looks forward to consequential strategic planning this next term under the capable leadership of incoming President, Barbara Caffery. Budget considerations will be an integral part of any relevant discussion.
The board will continue to be mindful of our fiduciary responsibilities to our organization and its members. In the meantime, as we analyze this year’s budget and periodically compare the budget to actuals, we hope the FY19 deficit is an over-estimation of expenses to revenue received. Please join us in San Antonio at the Academy Business Meeting on Thursday, November 8 from 6 to 7 PM in Room 302 and share any comments you may have. Should you have any questions or recommendations prior to the meeting please e-mail me directly at email@example.com
Joseph P. Shovlin, OD, FAAO