January marks the beginning of a brand-new fiscal year for many HOA boards. Now is the chance to take stock of how your board is operating and implement your budget – two things that are easier said than done. But these tips should help you get off on the right foot.
The budgeting process, which you should already have completed, is a chance for the board to set expectations for the community. Have a conversation with your management team about how the board wants the year to go.
Look at the disbursement schedule on the current reserve study. Ask if there are scheduled replacement or repair expenditures. As a board, you should all be clear on those expenses to eliminate any surprises. If there is a budget shortfall and a dues increase is not passed, what sacrifices is the board willing to make? Will services need to be cut? Or will the board cut reserve funding? Being honest and open about these needs is paramount.
Use your reserve study
The best asset for your budget and planning for future expenses is your reserve study, which also covers greater expenditures for replacements. A good reserve study lists all your components and replacement costs, so it has all the facts you need to see the overall picture. It also should detail all the large and small property expenses coming in the near future and down the road.
Boards often file away the reserve study and don’t utilize it as a planning tool the entire year. The study can also help the board to maximize its investment yields, because it will provide cash flow of funds necessary both short term and long term. Always have it at board meetings and consult it when looking at your finances or planning for the future.
Unless you are on a July through June fiscal year, you should already have the budget set by now. But if the board started its budgeting process in November, you may be behind the eight ball. Just keep moving forward, take notes now, and start earlier for the next budgeting session. To give the board time to look at numbers and projects – both short and long term – it’s best to start looking at the budget in June or July for December fiscal year budgets. That gives the board the breathing room for any necessary research and allows it to finalize the budget in September or October for the upcoming year. This helps ensure all board members are on the same page come January.
If your fiscal year starts in July, great! Now is a good time to start working on the upcoming budget year.
Spend board reserves when you need to
At face value, this sounds silly. However, boards may balk at spending money even when it’s been allocated. It may be necessary to offer a gentle reminder that the purpose of having the reserves is to spend it on projects.
Spending from the reserve may be difficult, especially if the board has gone from a deficit to a present surplus. Take a moment to acknowledge that you worked hard to get there and be proud of that work. Raising dues to do so is painful. But the board had a vision is raising the dues to pay for repairs and protect property values down the road. Keep in mind the vision the board set forth in raising those dues — to maintain the property for future prosperity. Also remember that potential buyers will always select properties that are well funded in their reserves, which will help to avoid that nasty word “special assessment.”
So, move forward on those repairs and replacements, confident in the knowledge that they have been budgeted for. Putting off these projects is likely to cost more as components further deteriorate and prices continue to increase year to year.
Rely on experts
You are a board member, a steward of the property committed to maintaining that property, but you are still a volunteer. You can’t possibly be an expert on every aspect of every issue the board may encounter. Bring in experts when they are needed. Property managers can help, but if there is a question outside their scope of understanding call on contactors or attorneys, or any professional with the knowledge to address what the board is considering.
Know your board
It’s best to know your fellow board members and what makes them tick. Nonprofit organizations (HOA boards are no exception) are made up of many personalities and driven by internal politics. The more you know what drives individual board members, the better.
Some see the big picture; others are detail oriented. It’s to your advantage to use them as their talents dictate. Have the vision and end game in mind. Give them tasks that feed into their strengths. Whether you gain insight by asking questions at the board meetings or during happy hour, what you can discern will help make the board a stronger, cohesive operating unit.
As a board, you all have a common goal – creating and maintaining the community as a great place to live. By starting the budge process early, planning accordingly, and working together, you will achieve the board’s goals.