Budgeting For Success: Managing the Rising Costs of Supplies, Labor and Insurance
To protect the financial health of your association, proper budgeting is essential. With costs rising in just about every area of an association’s budget, proper budgeting has become more challenging. So, what are some effective strategies to help you keep your budget in good shape?
In our latest Board Brief, our industry experts discussed how community associations are managing their budgets and shared tips to help board members like you navigate rising costs. Read on to learn practical strategies you can implement to help you maximize your budget.
Materials and labor costs are on the riseCommunity associations are struggling to keep supply costs down in the face of our high inflation rates. We surveyed community associations in the Southeastern US to ask what they were seeing in terms of costs and availability of materials and supplies they need to operate. 58% said they can’t get the materials they need; 14% can get them but can’t afford them; and 74% said they are postponing projects due to the rising costs of materials and supplies. These issues can lead to project delays, which might mean even higher costs in the future. So how do you navigate it all? Start by taking a proactive approach to budgeting. Your professional property management company can suggest ways to minimize the impact to your association from unexpected cost increases.
Condos and community associations may need to consider alternative funding resources to do what needs to get done at the property level. “One way we assist communities we manage is by working with them to obtain long-term financing to make capital projects more affordable,” said Kim Pinillos, vice president at FirstService Residential. "FirstService Financial assists FirstService Residential clients in fulfilling their financing requirements at competitive interest rates and terms.”
Associations are also challenged by staffing shortages and the rising cost of labor – a serious issue most organizations now face. Open positions mean your residents aren’t getting the service level they expect, often leading to resident dissatisfaction. According to our survey, 43% of properties have vacancies, with 17% reporting that they can’t afford the staff they need and 7% indicating that they’ve had to cut positions. The good news is that most boards understand how difficult it is to find and keep quality employees and are making concessions and adding flexibility where possible to help maximize their operations.
“In the communities we serve, boards understand that overworked staff (working double duty to cover for open positions) can lead to burnout and can cause your remaining employees to quit. We encourage boards to remain flexible and to work with existing staff to make reasonable accommodations around schedules during this challenging time,” said Pinillos.
Your property management company should keep you abreast of trends in the labor market, including wages, to ensure that you are in the best position to attract and retain the best talent.
Materials and Labor Budgeting StrategiesWhen materials and labor costs are unpredictable, preparing your association's budget can be challenging, but it doesn't have to be frustrating. Here are 2 tips to help you navigate higher costs:
Tip 1. Bid out your supply and materials contracts to ensure you get the best rates. Don’t just assume you’re getting the best deal. Ask a few suppliers to provide you with pricing each year to secure the best deal.
Tip 2. Consider retention bonuses and other monetary incentives for staff. “To retain staff, boards can focus on employee loyalty offering quarterly retention bonuses rather than an increase in wages which may be more feasible until costs have stabilized,” said Andrew Szaroleta, regional director at FirstService Residential. “Also look at next year’s budget and wages forecast to create a plan to potentially adjust wages and stay competitive with the market – and keep your existing associates,” he added.
Some properties are implementing culture enhancements such as ‘employee of the month’ programs, associate lunches, and gift cards as a way to recognize associates' hard work during staffing challenges.
Risks to considerYou should be aware of a few risks when employing budgeting strategies to offset materials and labor costs. For example, communities delaying projects due to rising costs sometimes think they can save money by completing projects themselves. But according to Szaroleta, associations should be cautious, ensuring to use licensed certified contractors to complete any projects.
“You want a properly vetted professional who is qualified to do the job. Unqualified contractors who aren’t insured can put your community at risk, creating potential liability for any damages or accidents that could occur,” he said.
Associations should also be wary of cutting staff. Cutting spending on a crucial function such as maintenance can expose your community to issues such as breakdowns and multiple repairs. Cutting maintenance staff may seem like the best solution when you’re in a budget crunch, but it usually isn’t the wisest choice.
And finally, pay attention to the small print in any contracts you sign to ensure you aren’t blindsided by and locked into automatic yearly increases.
Navigating Insurance Rate IncreasesInsurance premiums are rising across the country, and budgeting for these higher costs has become increasingly difficult.
Several factors influence insurance costs, including litigation fraud, which has led some insurers not to renew specific policies and raise premiums for existing policies. Supply and demand and an overall increase in property values have also played significant roles. There are fewer insurers in the marketplace, but the demand for insurance remains high.
According to our recent survey, 46% of properties reported premium increases between 1% and 25%, which is good news; 33% of properties reported an increase between 26-49%; 13% reported an increase between 50-74%; 3% reported an increase between 75-99%; and 6% reported an increase between 100-149%.
So, how are communities navigating these increases? Communities are taking various measures to help offset higher premiums. Some have opted to pay their insurance in one lump sum to take advantage of discounts offered by their insurance company. Others have raised their community’s dues to cover higher insurance costs. Some communities have secured lower insurance rates by weatherproofing their properties – demonstrating to insurance carriers that future claims are less likely. And still, others have implemented revenue-generating opportunities such as increasing parking and storage rental fees to afford the higher insurance costs.
Want to learn more about the factors driving insurance costs? Watch: Ask the Experts: Rising Costs in Association Insurance
Insurance Budgeting StrategiesNo board member wants to be caught off guard by rising insurance costs. Here are 3 things you can do to help combat higher insurance premiums.
1. Get started early – at least 150 days before your policy renewal date. You’ll need the time to do your homework and review insurance quotes.
2. Keep a list of property improvements to share with carriers to get the best rates. Carriers will want to know about any updates or changes to your property. Even minor roof, electrical or plumbing updates should be noted. If you've installed impact glass or shutters, you'll also want to share this information with your agent. Agents are responsible for presenting your association in the best light to the insurer, providing it with the information it needs to feel comfortable insuring your property.
3. Consider alternative financing options when planning your budget, including opening a line of credit or securing a loan. FirstService Financial can provide a comprehensive insurance review to help communities optimize their budgets by finding the best coverage.
Contact FirstService Residential to get control of your budget and learn to navigate rising costs.