Association Budgets: Creating a Road Map to Success
It’s budget season! Are you stressed? Concerned about a potential dues increase or large capital project looming in the future? The word ‘budget’ can be scary, so thinking about creating next year’s budget is daunting for many homeowner boards. We’d like to change that. In fact, we don’t want you to view next year’s budget as a task at all.
Think of your budget as the community’s road map. It will either lead you to a successful destination or leave the community stranded. If thoroughly thought out and strategically planned, it should take the community to a fiscally sound place, without any surprise detours along the way. The best outcome to a strategically planned budget is that it can maintain, and even increase, property values in your community. So in order for you to get the most from this budgeting season, we put together a series of articles and information to guide you and your board through the process.
If your homeowners board does not take budgeting season seriously, it puts them and the entire community at risk. One of the worst scenarios for an association is being underfunded which can lead to decreased property values, potential vendor issues, an increase in dues or special assessment, and an unhappy community. Let’s take a look at how poor budgeting can affect your community members, the board, management team and even vendors.
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Unfortunately, these can all be a reality if the board isn’t fully prepared for their budget working sessions.
Protect your community by keeping the following in mind when beginning your budgeting process.
1. Look beyond the current year.
While the board is technically developing an annual budget, the budgeting process should drive the board to think long-term and consider how scheduled expenditures can actually help the community association save money down the road. Consider the next 1-, 3- and 5-years and anticipate upcoming and/or potential projects that cannot be funded from your reserves. Write these down!
2. The association comes first.
One of overall goals of the community association should be to increase property values and enhance the quality of life for its residents. In order to do this, steer clear from politics and avoid being forced into making decisions that don’t universally benefit everyone in the association.
3. Don’t focus on set increases.
A lazy and problematic approach is to simply factor in a standard percentage increase. Sure, include an estimated 3-4 percent increase for inflation, but only in addition to increases based on historical data and input from your property management company.
4. Consider seasonal fluctuations.
Maintain a minimum of one month of assessments in your operating account at all times. Our seasonal changes make for higher expenditures in some months and lower in others, so don’t underestimate these fluctuations.
5. Delinquencies are a reality.
Make sure your association’s collection policy is clearly defined, regularly communicated and uniformly enforced. Consider expected delinquencies as bad debt and never assume you will collect 100-percent of assessments owed.
6. Explore additional income opportunities.
All fees should be consistently enforced such as late fees, violations, interest, key fobs, etc. Contemplate additional avenues such as rental fees, move-in/out fees, clubhouse rental fees, etc.
Creating your community’s road map isn’t always going to be easy, but if you approach it strategically, you can minimize the risk of being underfunded, lessen the burden of future budget planning sessions and ultimately keep property values elevated. Learn more about how a professional property management firm can help your community cruise comfortably toward financial success. Contact FirstService Residential, the leading community management company in Minnesota. Where will your community’s financial road map lead you?
