Self Management: Saving Money Part 1

The topic of this article is one near and dear to every board member’s heart. It is about saving money.

Before proceeding, I thank you for the many kind words in your emails and I value and appreciate your thoughts and comments. My company, Vanguard Management Group, manages well over one hundred associations. We offer board certification training, a mandatory requirement of the Department of Business Regulation in the State of Florida. In that we do not charge for it, hundreds of board members and volunteers of both managed and self-managed associations register for it. Like you, their primary concern is having funds sufficient to meet the demands of day-to-day expenses  as well as having the long-term financial resources to und their reserves. Therefore, in that saving money is of vital concern to boards everywhere, I wrote this article. Because of your suggestions and the concerns of boards everywhere, this article addresses saving money.

billionphotos-1905103The desire to save is innate and biological. In days of old, we put up veggies for the winter, squirls hide acorns, and bears store fat for winter. Furthermore, frugality is a logical mindset of board members based upon the following factors. Board members are usually older and more conservative. With the advance of age, people tend to think of their future in light of waning income as they near retirement. Add to this the downturn in our economy. Recessionary symptoms appeared in 2006 and continue through today. This has added an additional financial strain to many associations by way of delinquencies and foreclosures. Sadly, most of us know someone who is unemployed. In addition, many of us cannot but help to worry about our own livelihood. With these factors in mind, it follows that boards’ primary concern is saving money.

Based upon our experience, Boards have been trimming their budgets ever since 2006. Operating budgets are so lean that they squeak. There are also far too many instances of boards neglecting the proper funding of their reserve accounts by either design or neglect. By now, most budgets are barebones. However, money is still tight. So what is a board to do?

Their reaction has been twofold: self-reliance and postponement. Boards are taking on more responsibility and they are deferring more critical maintenance than ever before.

By self-reliance, I refer to board members and volunteers performing the services formerly provided by others. The board replaces a service provider and saves money. In that this series serves the self-managed association, self-managed boards perform the services of a property manager and sometimes of an accountant. This reduces owner assessments and in doing so preserves the owner’s capital.

Did you get that? “Preserves the owner’s capital….” Unfortunately, this does not benefit the association’s operating account or their reserves. Therefore, money is just as tight for self-managed associations as they are for associations that utilize property managers and accountants.

We provide accounting and assisted management services for dozens of communities. I am not advocating full service management or self-management. This is a board choice. However, this article is about saving money. If one is to benefit from the article, they need a clear understanding of the financial concepts that follow.

In summary, self-managed associations do not budge for management fees because they do not pay them. The savings benefits the owner only. If the board charged the fair value of their services to the budget, but did not take compensation for their volunteerism, then the savings from self-management would benefit the community. Perhaps if boards would budget in the cost of services saved by volunteerism, communities would be better maintained and the worries of inadequate reserve funding would be less.

Perhaps my logic is flawed. Let us go with the premise that reduced assessments from volunteer services somehow benefit the association and that it preserves the association’s resources.

We will continue with this topic in our next Community Self Management post.