What to Consider When Creating Your Community’s Budget
Partnering with best property management company can make this easier. Experienced Community Managers have created budgets multiple times and are familiar with what is needed to create a budget that helps you work towards community goals. To help you get started planning, below are six budget basics to follow.
1. Develop your GERT.
Sound weird? It should and this makes it pretty easy to remember. It stands for the most common elements you’ll need to consider as you create a successful budget:
· Goals and objectives of your community
· Estimated common element expenses and income
· Reserve funding, per your most recent reserve study
· Timeline for your budget and spend
Together, these basics become the base for creating your budget. Keeping your community goals in mind helps you focus on the big picture while you’re examining the details. A sound financial foundation is established by looking at estimated expenses and income. Reserves are sometimes overlooked, but are an important piece of your budget. And the timeline is key so you can deliver the budget in a way that is both reasonable and effective.
2. Gather materials and documentation.
Many of the documents you need to start creating your budget are monthly records that your association most likely has on hand, whether you have previously created a budget or not. Either way, these past documents will help you structure your budget correctly. Some of these are:
- Previous year audit
- Financial statements
- Monthly management report
- Reserve study
- Prior year operating results
- Association documents
- Schedule of delinquent unit owner accounts
- Deferred maintenance schedule
- Contracts for services
- Wish list items
3. Create the essential budgetary sections.
Now that you have identified your GERT and gathered important documentation, it’s time to integrate that information into your budget. Even though each community and budget will have different specifics, they should all include basic categories like:
- Expenses for a unit owner
- Management fees
- Annual audit fee
- Community Amenities (i.e. Clubhouse, Pool)
- Snow removal
- Deferred maintenance (projects such as painting and power washing)
- Provision for bad debts
- Operating contingency (budget approximately 3%-5% of total operating expenses for unexpected expenses)
Reserve expenses - which would cover projects noted in your reserve study, such as:
- Roof replacement
- Pool resurfacing
- Deck replacement
- Pavement resurfacing
- Walkway replacement
- Updating the Clubhouse
- Capital expenditures
4. Things to Consider.
As you populate the sections in Step 3 with estimated pricing, you’ll want to keep other important factors in mind. This includes the level of service and amenities you wish to provide residents, whether any programs are offered or designed by owners (educational, clubs, events, and other things of this nature), the historical data that may help you budget for the upcoming year, does your reserve study need to be updated (recommended every 3 to 5 years) and economic considerations (such as gas prices, utility variances, changing labor costs and insurance).
In addition, you’ll want to review your vendor contracts to see if there are any projected increases in their rates. Review your reserve study so you know what your upcoming maintenance requirements are and costs associated with those projects. Finally, in the interest of maintaining property values, it’s always good to have a deferred and a preventative maintenance schedule to remind you to perform some upkeep (such as painting and repairs) before the community actually looks like it needs it. Keep in mind your property’s age, the older your property is the greater your maintenance costs will be. Be aware that putting off maintenance projects, large or small, increases costs in the long run.
5. Know where the money’s coming from.
Your budget should account for money going out, but also covers what’s coming in. Make sure that you know exactly how your budget is funded beyond what each owner pays in assessments. This can include interest, clubhouse rentals and other income sources.
6. Use the right tools.
Now that you have an idea of what should go into your budget, it’s parameters, all the necessary background information, and a framework, it’s time to track everything with financial software. Since Excel and other similar products will only provide the basics, it is essential to find systems that will help you accurately keep track of your budget and allow you to access detailed monthly financial reports. Your property management company should have advanced systems and tools that can help you make the analysis of your budget a breeze.
Now that you have the foundation for your budget in order, it’s time to put it to good use. A good property management company can help you fine tune your budget and can provide guidance to make sure that it is effective for your community.
Remember, your budget is more than just a set of numbers. It’s a catalyst for positive change within your community or association. To get started on yours, contact FirstService Residential, New Jersey’s leading property management company.