Why should Practice the Financial Analysis of Association

Practice the Financial Analysis of Association:- The accounts of the associations have certain peculiarities which must be controlled. They carry out very diverse activities: humanitarian, cultural, cultural, sports, social, political and environmental.  The voluntary sector is particularly dynamic. France has 1.2 million associations representing 60 billion funds managed. The economic activity of the associations represents about 4% of the national GDP. Some associations represent a considerable economic weight, for example the Red Cross, the AFPA, the League against Cancer.

Reasons to Practice the Financial Analysis of Associations

1. What sets an Association Apart from a for-Profit Company

It should be noted that associations, such as for-profit companies, can carry out an economic activity and make a profit. Being by nature not-for-profit, they do not have the right to distribute this profit in any form whatsoever, the results are used in the purpose of the association exclusively. An association cannot be sold. However, it may make a partial contribution of assets or a part of its activity to another association.

2. Who needs to Analyze the Accounts of the Associations? What Questions do they Pose?

• The leaders of the association analyze the accounts to ensure financial management: the different categories of revenue (donations, subsidies, pricing of activities) and expenses (wages, rents, consumption,).
• Public (Europe, State, Local and Territorial) and private (donors, patrons) financiers seek to assess financing needs. Each funder likes to read in the accounts of an association that finances what is the “tour de table” of financiers and therefore measure his financial effort compared to other funders.
• Bankers and lending institutions evaluate repayment capacity through cash flows and financial balances.

The financial analysis allows on the one hand identifying the economic model of the association and on the other hand to assess its financial base (own funds, working capital and WCR cover …)

3. What Accounting rules and What Specificities?

The small associations are limited to a simple cash accounting, retracing only cash receipts and disbursements. Specific accounting rules were only defined in 1998 for the sake of transparency and applicable from 2000 onwards. Thus, associations having reached a certain size (50 employees, 3.1 million CA, 1.550 million balance sheets) must keep an accounting of commitments, designate a CAC and publish their accounts in the OG of the associations.

Many sectoral texts also specify the thresholds triggering an obligation of commitment accounting: Professional Training, CFA, electoral financing…

The Chart of Accounts of associations and foundations adapted the PCG on 9 points specific to these non-profit organizations, including:

• The notion of associative funds which makes it possible to build up reserves to improve the capital. Many associations having been founded without initial own funds.
• Valorization of volunteering and voluntary contributions (provision of material resources, human resources, etc.) which allows better measurement of real activity and makes sense of the economic model. These amounts are both recorded as expenses and income in the class 8 accounts.
• Result under the control of the third party financier: the financier reserves the right to recover this result which comes from unused funding. This result can only be considered acquired if the financer officially renounces it.
• Dedicated funds that allow year-by-year tracking of funding allocated to actions to be carried out by the association.

In addition, those who appeal to public generosity and collect more than € 153,000 per year must establish an Employment-Resources Account that justifies the use of the resources collected.

4. Do Associations also need to Carry out Cost Accounting?

Yes, in many associations, analytical accounting or homogeneous section is required in addition to global documents to trace the use of funding by activity and assess separately the results of different activities within the same association.

It guarantees to funder’s who wish to support only one activity or a specific project that the funds they have contributed are well allocated to this activity or project. For example, a financier wants to finance only the accommodation of the homeless in an association that pursues a more general social purpose of social integration.

It should be noted that the notion of subsidy was given a legal definition on July 31, 2014 in the Social and Solidarity Economy Act to distinguish it from the financing of services or public contracts entrusted to associations. The term “grants” should be reserved for contributions from a community that supports a project that has been initiated by the association.

5. What Message do you want to send to the Financial Officers of Associations?

I often observe a cultural difficulty for associations to seek equity and to understand the importance of RF. The analysis of the accounts of many associations reveals most often inadequate capital to finance the growth of their activity or ensure their sustainability in a context of scarcity of public funding.

Many associations are still dependent on their “traditional” financiers and do not have the reflex to undertake a search for diversification of their financing from individuals or companies. In this sense, a more active approach to seeking funding is needed.