While I know that Georgia members of the Community Associations Institute (CAI) read the quarterly magazine, Georgia Commons, you may be less likely to peruse the pages of Common Ground, CAI’s national bi-monthly publication. I read both, and also write an HOA finance-related article for every Georgia Commons edition.
In the March/April edition of Common Ground, there were two excellent articles that made points worth sharing. As a CAI national member, you can read the full articles from the Common Ground website page. If you don’t have access (or time), I’ve included some key points below.
The first article is entitled, “On the Road with Reserves,” by Robert M. Nordlund, RS, the CEO of Association Reserves. In the article, Robert discusses a few challenges associated with managing a reserve fund. Here are two items that I’m always mentioning to my clients:
- Replacement costs listed in the reserve study are estimates, based on a variety of factors. The association will ultimately determine the actual expense, whether above or below estimate, when initiating a project. Note the variance in reserve documents, and adjust future reserve funding levels as needed to stay on budget.
- You can’t ignore reserve funding and reserve projects. If you fall behind on either, it becomes extremely difficult to catch up. Lack of funding may mandate those dreaded special assessments. Allowing facilities to deteriorate may increase repair and replacement costs exponentially. As a board member, it’s your fiduciary duty to adequately maintain the reserve fund and community.
The second article, “Budgeting Basics,” makes a number of key points that are included in the CAI training module “Fundamentals of Financial Management.” I recently presented this module at a local CAI board leadership development workshop. Here are two budgeting tips from that workshop.
- Understand trends and be realistic. If the association’s electricity has increased 5% per year for the past few years, budget 5% more next year. It’s pretty rare to have a 100% dues collection rate. Budget based on reality, which is probably more like 90-95% for most communities.
- Document budget notes and variances. Treat the budget as a living document. During the budgeting process, include notes that explain why you’ve chosen budgeted amounts for key budget line items. When an actual expense varies from budget, note the reason why, such as an expected repair or new contract savings. This makes the budgeting process easier and more accurate going forward.
Here are two articles that I’ve written on the topics of reserves and budgets. I hope these also help you maintain the health of your communities as board members or property managers.
Neal Bach, CPA