Of all of the responsibilities entrusted to condominium board members, fiscal stewardship is among the most important. And the backbone of that duty is your annual budget.
But all too often, that task comes with a lot of hassle and plenty of heartache. It’s never an easy job, but there are some things you can avoid to make it at least a little bit easier. To that end, we’ve put together a list of common mistakes boards make that usually end up being sure-fire budget killers. Watch for these pitfalls and you’re assured a smoother budgeting process – and stronger finances in the future.
1. Sudden increases in maintenance and common charges.
You can’t get around the fact that most products and services get more expensive over time. Yet most corporation boards don’t plan for this in the right way, often instituting sudden increases that are larger than expected in order to cover shortfalls. The secret here is to make your increases gradually, over time. You know prices are going to go up, and gradual increases will help accommodate them in a way that minimizes unpleasant surprises. A good property management company can help you plan the right way.
2. Special assessments.
A special assessment can be one of your worst enemies if not used appropriately. They should never be used for accommodating a rise in maintenance/common charges. Use this tool only when funding a specific project, increasing your working capital or bolstering your reserve funds. Resist the temptation to including a contingency line item in your budget as well – this will only complicate things later on.
3. Inadequate reserves.
You need healthy reserve funding so you have the resources to pay for capital improvements like roofing, paving, upgraded systems, facades, equipment and more. Your annual budget should accommodate for a percentage of your corporation’s reserve fund according to your statutory requirements. This isn’t just a matter of being able to fund the improvements you need to keep your community at its best, it’s also a requirement of many lending institutions. How do you know how much to set aside? Conduct a comprehensive reserve study, then plan accordingly.
4. Aging payables.
This is the number one indicator of a deficit in your budget. If you find that your payables are running beyond 60 days, it may be time to include a special assessment. You can also tell if a deficit’s on the horizon if your forecast for the upcoming year is substantially at odds with what’s reported by your annual financial statements. Either way, paying vendors promptly is an essential part of getting great service, so you’ll want to make sure deficits aren’t a barrier to timely compensation.
5. Expenses that you assume are fixed.
When you’re working up your annual budget, take the time to look at all of your fixed expenses. Rather than just annualizing the costs of vendor contracts from the previous year, take this opportunity to seek out more competitive arrangements. You can even talk to your community manager about reducing overtime. Another great way to save: your energy expenses. Seek out ways to make your systems more efficient, and ask your property manager to help you lock in reduced rates for electricity, gas and fuel. Remember, the best management companies will have the kind of buying power that translates to lower fees and rates for your condominium corporation.
Your annual budget represents more than income and expenditures. It’s a framework for how you can help create a quality lifestyle for those in your community. A good property management company can help you approach this important task strategically – and then work with you afterwards so that you can adhere to the plan you’ve set forth. That encompasses tracking expenses, controlling cash flow, planning capital improvements and conducting the kind of market projections that will help you avoid unpleasant surprises.
For more on budgeting for success, contact FirstService Residential