6 HOA Creative Money-Management Goals
Money is the lifeblood of an HOA.
Accountants are not known for their creativity, or at least shouldn’t be. However, when it comes to homeowner associations, accounting methods could use some creativity. Too often, last year’s numbers are mysteriously morphed into this year’s numbers and away we go!
Even though budget numbers don’t have quite the same nuances of words, how and why they are used has an enormous impact on the well-being of the homeowner association. There is a creative process that should be followed to ensure thoughtful results.
That process should be guided by this principle: The budget must be adequate to properly maintain the biggest and most important investment the members have (their home) and enhance the livability of the community in general.
To that end, a draft budget should be compiled based on the previous twelve-month expenses and adjusted by known future trends like increases in utilities and service contracts. To this is added a Wish List. Then, the budget is presented to the Board for discussion. (Your HOA may also require member input and approval).
The approved budget should be communicated to the membership a minimum of 30 days before the start of the new fiscal year to advise of any assessment changes. Some other important goals of creative money management include:
Provide Adequate Detail. Your budget must be detailed enough to identify significant costs like fence, deck, painting, roofing, electrical and plumbing. Only if there is a breakdown can trends be tracked. If plumbing expenses are much higher than normal, find out why. If there is a weak link in the plumbing system that is bound to fail again, the budget can provide preventive maintenance rather than reactive maintenance. This way, you can avoid costs for cleanup and disruptions that floods always cause.
Spend Wisely. Many budgets are inadequate to the tasks they were designed to handle. Sooner or later the property shows it, market values and livability declines. Do not try to do this on the cheap. The Board is not elected to keep assessments as low as possible. The charge is to manage HOA business efficiently to get the best value for maintenance and services. Spend, but spend wisely.
Follow a Reserve Plan. Having a long-range schedule and funding plan for future repairs and replacements is one of the most important parts of the budget. A 30-year projection along with a monthly funding plan is the right way to go for all condominiums and homeowner associations with substantial common elements.
Communicate to Membership. Invite them to attend the Board Meeting where the budget will be approved or hold a special meeting. Answer all the questions clearly. Garner member support early to eliminate challenges later on.
Produce Regular Financial Reports. The Board and Manager can track revenue and expenses and make changes as needed rather than waiting until it's too late. Distribute the financial reports to the members.
Enact a Collection Policy. There is no government bailout for HOAs. If one member fails to pay, the rest will have to. The longer you wait to collect, the greater the chance of not getting it. And if you have no money to pay the bills, just think how "creative" you’ll need to be.
Money is the lifeblood of an HOA. You need it to survive but with a bit of creative accounting, your HOA can thrive. Nuance your numbers and see.