Tips for Avoiding Budget Problems
If you’re a member of a community association board of directors, then there is probably one time of year you dread more than all others – budget preparation.
The annual budget planning process – usually begins in the fall since most community association budgets follow the calendar year. It can be intimidating and time-consuming for all involved.
To help, we have prepared a list of helpful tips to make budget preparation as simple as possible.
1. Establish a Process
Following a set of outlined steps in order – or hiring a professional management company to do so for you – can help community associations avoid a lot of the common budget-planning problems.
With a professional management company, the community manager typically creates a draft of the budget for the Board to review.
2. Look at the past before planning the future
Rather than start by projecting expenses, it’s best to start the budget planning process by reviewing the current and prior fiscal years. Compile detailed information on previous operational spending, so that an accurate analysis can be performed. This is also a good time for a refresher on governing documents to ensure the community association is aware of its responsibilities and on contracts, to determine if automatic increases are built in or will need to be renegotiated.
3. Check your Reserve
This is a crucial part of budget planning, since community associations need to know if reserve contributions are sufficient. We recommend having a professional reserve study completed to ensure enough money is held back each year to meet current reserve expenses and future needs.
4. Get Vendors Involved
Bringing your vendors – landscapers, pool cleaners, etc. – into the loop while you’re putting the next fiscal year budget together. They are likely to feel more accountable to hold expenses within that budget if they feel like they have been part of the process.
5. Reach out to utilities
You should contact utility companies to see if there have been any rate increases in the current fiscal year and/or if any are on tap for next year. This way, you don’t have to guess when planning your budget. The cost of permits and routine inspections – for elevators, pools and backflow prevention valves, to name a few – are are usually known well ahead time, as they are regulated and required by government agencies.
6. Budget for bad debts and other variables
Budgets are typically based on receiving payments from all members, but what happens if not all members pay? Delinquent payments can add up to insufficient cash to pay expenses. Planning for some bad debts within your budget will protect your community association if/when this occurs.
Further, economic variables, such as inflationary spikes, can profoundly impact a budget, so plan for those contingencies. Condominium or townhouse associations with master insurance policies can count on insurance being one of the largest expenses, but be sure to consult your insurance agent on any anticipated rate changes.
Once you’ve put your budget together, you can rest a little easier.