I must say, life as a Property Manager is infinitely easier when you are dealing with a financially sound Association.
In order for that to happen, Homeowners and Board Members need to be educated to the fact that it is their responsibility to fund the community. Indeed, Board Members have a fiduciary duty to craft a budget that will adequately fund the Association’s day to day expenses and put a little something away for the Association’s future needs. This is a fact of life for Association living and there is no getting around it. If you think you want to try, you will ultimately fail.
I have had both good and bad experiences with budget crafting. It is truely gratifying when the Board of Directors knows it has a responsibility to adequately fund the budget and is willing to proceed accordingly. On the other hand, it’s absolutely horrifying when they decide that they can defy the financial history and “tighten the belt”. Don’t get me wrong, I’m not saying that financial prudence isn’t a guiding factor. What I am saying is that running a defecit one year, even though every effort was made to spend wisely, and deciding that you are going to stick to the same numbers this year and just find places to cut costs just isn’t going to work. The line item that usually suffers when that happens is the reserve contribution. While that may get you through today, what happens when that future rainy day that you were supposed to be saving for comes?
When you are budgeting to be a financially sound Association an honest and objective look at past operating history and costs is the real jumping off point. Looking over past years history will give you some insight into what to expect in the future. Going over past budgets line item by line item can be most revealing. Sometimes you will find areas that have been over budgeted leaving you a redirect-able surplus. Other times you will come across those problem areas that left you with a line item deficit. All in all, you will have a picture of reality. When you know the reality you will have determined what the proper assessment per unit should be.
The worst thing you can do when striving to become a financially sound Association is to try and work backwards. Working backwards is where you decide that you are only going to raise the assessments x amount of dollars and then trying to make the numbers fit around that. You have to really discount history to do that. This kind of budgeting is not based in facts, it cares nothing for the facts, and the only fact attached to it is the fact that if you didn’t guess high enough you will be running a deficit.
The tighter I wrap my mind around this subject, the more I find I have to say. Since I have neither the time, nor the inclination to put it all down in this one sitting, I guess you’ll just have to keep coming back.
Tags: Board of Directors, Budget, Community Association, Property Manager
