Preparing your association’s annual budget can be challenging, but that doesn’t mean it has to be a negative experience. With a few pointers, you can take away some of the hassle and end up with a more workable budget in the process.
 
“The proper functioning of an association starts with the budget,” said Ian Guertin, FirstService Residential Community Manager in Baltimore. “The work you put into it directly correlates to your residents’ quality of life, so extra effort is definitely worth it.”

Let’s take a look at a few tips to help you prepare an actionable budget for your association. 

1. Time it right.
In Maryland, state law dictates that the board, or any governing body of an association, must submit the budget to owners at least 30 days before it’s adopted. Use this important deadline to create an overall timeline for the creation of your budget.
 
2. Look beyond a single year.
Just because it’s called an “annual” budget doesn’t mean you have to only focus on the upcoming year. It’s ideal to have not just a one-year plan, but a three- and five-year plan, too. Don’t make the mistake of merely rolling over the same costs for your multi-year plans. You should review vendor contracts and track any anticipated increases. A good community association management company can help you mitigate this problem by negotiating long-term contracts at favorable prices.
 
3. Keep an eye on your fund balance.
It’s best practice to keep your operating fund balance equal to at least a month’s worth of maintenance fees. If you’re not there yet, a special assessment might be in order. Other important considerations include your sources of revenue and refraining from using problematic contingency line items (they wreak havoc later on).
 
4. Watch what you spend.
Again, don’t fall into the trap of annualizing expenses from the previous year. Take the time to carefully analyze your expenses and thoroughly review them, one by one.

5. Take action on delinquencies.
It’s unfortunate, but delinquencies are a factor in every budget. Your expected delinquencies should be considered a bad debt during budget prep. Though delinquencies are often unavoidable, they can be mitigated through an aggressive, but fair, collections practice. Be sure you charge consistent late fees if you’re going to use penalties as a tool. And remember that high receivables put your association at serious risk.
 
6. Be brave in your decisions.
The most stressful part of budgeting is making hard choices. If your community association manager included a letter of recommendations along with your most recently audited financial statement, this is when you should give that advice a serious look. If you think you might have an accumulated deficit or a possible shortfall, include it in your budget now. Your alternative is levying a special assessment.
 
7. Your process matters.
It’s not just what goes into your budget. How you go about it matters, too. That means getting board approval for reserve expenditures, along with instituting good internal controls so that you can protect your association from misappropriation or gross inefficiencies.
 
8. Association members are your priority.
The numbers on your spreadsheet have a huge effect on the real world. So remember, your budget is there to act as a tool for the benefit of the association and its members. That means avoiding all politics when undergoing the budgeting process.

Hopefully now you’re in a better position to embark on your annual budget. For additional help, contact FirstService Residential, Maryland’s leader in community association management. 
 
Thursday July 21, 2016