Is your Community Association a business? In many respects, the answer is yes. Most Homeowner Associations (HOAs) and Condominiums are founded as a corporation formed by the property developer as a State requirement of marketing and selling the homes in the subdivision. Once a pre-determined number of HOA lots or Condo units have been sold and a community of Owners has been established, the legal responsibilities of managing the Association are transferred to the Homeowners.

Regardless of who is in control, the legal entity of the Association operates as a not for profit, non-revenue generating business although often with sizeable budgets. Its governance is overseen by a Board of Directors, whose members are elected by the Owners and each Board member holds a fiduciary responsibility to look out for the welfare of the entire community. Further, its goal is to operate according to sound business principles that make the best use of the revenues contributed as fees by homeowners. In many cases, an outside professional firm, such as WPM Real Estate Management, assists the Association with its responsibilities.

At the same time, Community Associations differ from a for-profit business in several important ways. First, their boards are often all-volunteer and comprised of owners who are peers with the other property owners they govern. While not required to, many Board members live within the community, side-by-side with the neighbors about whose affairs they make decisions. And so, Board members need to be especially diligent to make decisions based on sound business principles, not clouded by personal relationships. Further, a Board’s goal is not to create revenue, but to maximize the value of its existing assets: to preserve, protect, and enhance the properties it oversees.

So what is the best way to govern this hybrid organization? Despite the obvious ways that the association differs from a business, it still behooves board members and owners to operate the HOA/Condo according to sound business principles. And according to WPM’s President of Association Management, Barry Yatovitz, that starts with the budget which is approved by the board at the beginning of each fiscal year. Careful attention to monthly and yearly financial statements and their variances from the budget is imperative. Understanding the funds under management is the first step for strategizing current and future planning. And it is precisely that planning (e.g., anticipating the need for upgrades to amenities, replacement of structures, payments to vendors and for professional services) that maintains and adds value to the Association-managed properties.