Whether you are a brand new board member serving for the first time or a seasoned veteran or property manager, you need to understand one very simple but vital concept about your community association – it is a business and needs to be run like one. It is no mistake that the association is formed as a corporation. Like any corporation, the association has officers and directors who are responsible for running the corporation in a professional manner and who can be held accountable to the members or shareholders for failing to do so. Granted, your corporation is not in the business of making a profit or issuing dividends to the members, but like any non-profit corporation it is still responsible for operating a significant budget and maintaining and preserving the value of its assets – namely, the property itself. The most successful and well-run associations are those that understand and embrace this concept.
What does it mean to run an association like a successful business? First and foremost, it means that the officers and directors must take their positions seriously and act with an eye toward what is best for the entire corporation and its members and what will enhance the corporation’s assets. They do not act with a personal agenda or out of personal feelings toward any of the members. Instead, they act with a view to the future and what will be best in the long-run for the association. This includes things such as not showing preferences for certain members in connection with the enforcement of rules or the collection of assessments. It also means that the association does not defer or take short cuts with required maintenance or other projects that are vital to the preservation of the common areas and other portions of the property for which the association is responsible.
Secondly, running the association like a business means educating yourself on legal, financial and other matters that impact your business. This does not mean that your board must be comprised only of attorneys, CPA’s or other business owners or that they must already bring with them some kind of relevant experience or knowledge about running a business. What it does mean is that those who volunteer to serve for the board must be willing to educate themselves as to what they need to know to make the corporation successful. There are so many free and low-cost opportunities for boards to obtain the information that they need to be successful that there really is no excuse for not doing so. Whether you are collecting and reading newsletter articles (such as this one), attending board training and seminars such as those offered through CIC Midwest and other trade organizations, participating in discussion groups to learn how other associations are handling the problems that your board is facing, or all of the above, the important thing is that you arm yourself with the available knowledge to properly do your job.
Thirdly, as with any business, an association needs to act prudently and in a fiscally responsible manner. This does not mean that you cut corners or always go with the cheapest product or service but rather that you research your options and spend the association’s money wisely to get the best option for your association without paying extra for things that you do not need. Often, this means spending a little bit more now for quality products and services to avoid having to pay more later when you discover that that the cheapest option was not the best one. Acting in a fiscally responsible manner also means protecting your association from risk by carrying adequate insurance, working with your manager or accountant to prepare appropriate and accurate annual budgets, and having appropriate controls in place to protect the association’s money and bank accounts from fraud, unauthorized expenditures or other costly mistakes. It also requires you to maintain an adequate reserve account and wisely invest those funds to ensure that you are able to properly maintain and replace the physical components of the property for which the association is responsible, and to keep on top of your accounts receivable and take appropriate collection action when necessary. Additionally, it is vital that the board have an accurate understanding of those expenses for which the association is responsible as well as those for which it is not responsible or that can be passed on to the owners. If you are not sure who is responsible for particular expenses or what amounts can and cannot be assessed back to the owners, make sure to get a legal opinion up front from an attorney with experience in community association law before trying to discern this information yourself or you could be facing lawsuits, collection problems or other issues as a result of an incorrect interpretation of your documents.
Finally, running an association like a successful business requires the board to understand its own limitations and to establish relationships with trusted vendors and advisors to assist the association in situations that the board simply is not competent to manage. Boards or their managers must be able to pick up the phone and readily get information and advice on anything and everything they need to properly manage the corporation and they need to be able to rely on the advice that they receive. You wouldn’t try to run any other kind of business with similar size and assets without hiring or contracting with appropriate and trusted accounting, legal and other professionals, so why would you ever try to “wing it” with your association knowing that not only your business but your own personal investment in your home is at stake? These professionals are not just there to bail you out when you get in trouble but can also be a great tool for keeping the association out of trouble and making sure you are taking the right steps to keep things running smoothly and in compliance with all applicable laws and regulations. Good vendors will also help the association to manage risk and determine what maintenance or replacement projects should be done and when, as well as how best to finance those projects.
If you operate your association like a business and with the above principles in mind, you will not only enhance property values and make your association more attractive to new buyers, but you may also find that your association is easier to manage and takes less work to keep things running smoothly.
Originally published in CIC Midwest.