Five Things that Break Your Budget
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Being fiscally responsible is one of the more difficult responsibilities given to condominium board members. It isn't easy, mainly because of the stress caused by having a balanced annual budget.
However, you can ensure that you are on the road to success and make things easier for yourself. What you'll read in this article is a list we've compiled of what common mistakes boards make to set a budget down the wrong path. Look out for these mistakes and get on track for a smooth budgeting procedure for healthy finances.
1. Sudden increases in maintenance and standard charges.When creating your budget, you cannot assume that prices will stay the same from the previous year. They eventually become more expensive, and your thinking process needs to incorporate this as you create the yearly budget. The most significant mistake corporation boards make is undermining these costs, and forgetting about a safety net for these annual increases. What to do in this case is to make your gradual increases over time. Despite mentioning that prices will go up, they will not skyrocket immediately. With that knowledge, you can accommodate them in a way that minimizes unpleasant surprises. With the help of a community management company, they can help you figure out a proper plan for the yearly budget.
2. Special assessments.Special assessments can be a thorn on your side if misused. Never use them to accommodate a rise in maintenance or standard charges. The primary use of this tool is to fund specific projects, increasing working capital, or strengthening your reserve funds. Another potential complication is if you include a contingency line item in your budget. Put simply, don't do it!
3. Inadequate reserves.Having healthy reserve funding is essential, so you have the resources to pay for capital improvements such as roofing, facades, paving, and more. It is best to allocate specific percentages of your budget to your corporation's reserve fund according to your statutory requirements. It is an excellent practice to fund condo improvements, but it's also a requirement of many lending institutions. To know how much is sufficient to set aside, it is best to conduct a comprehensive reserve study and plan accordingly.
4. Ageing payables.If you have payables stacking up, this is a sounding alarm that there is a deficit in your budget. If payables are going beyond 60 days, you may need to think about including an individual assessment. Another telltale sign of a deficiency is if your forecast for the upcoming year does not coincide with what's reported by your annual financial statements. In either case, ensure you are paying your vendors on time so that your working relationship is not affected, and that deficits aren't a barrier to timely compensation.
5. Expenses that you assume are fixed.When building out your annual budget, look at all of your fixed expenses. Instead of annualizing the costs of vendor contracts from the previous year, don't be afraid to look at second options that could be competitively priced. Perhaps you can even talk to your community manager about reducing overtime. Other ways that you can save are through your energy expenses. Maximizing efficiency is often overlooked, but it can be a significant cost-saver. This includes locking in reduced rates for electricity, gas, and fuel, all of which can be discussed with your property manager. Remember, the best management companies will have the 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 community management company can help you approach this critical task strategically – and then work with you afterward to 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 today.