Preparing your New York City condominium’s or cooperative’s annual budget can be a source of stress, but more importantly, it’s a valuable opportunity to take a deeper look into the status of your property’s financial well-being. Effective management of your building and your finances relies heavily on how successful you are in budgeting for short-term and long-term goals.
As a board member, here are some important guidelines you should consider during budgeting season:
1. Think long-term.
While it’s an annual budget, you should still consider what lies beyond the current year. Every community should have 1-, 3- and 5-year plans in place. If you are partnered with a management company, speak to your property manager for guidance on how to develop such a plan. This is the time to anticipate projects that can’t be funded from your current reserves. It’s also a best practice to take a look at your current vendor list and determine if you need to plan for increases in their fees. Remember, a well-connected management company will have purchasing power that may help you negotiate better rates and fees.
2. Study your fund balance.
Your operating fund balance should be, at minimum, equivalent to one month’s maintenance. If you’re not quite at that figure, you may need to consider an assessment to cover the gap. While studying your fund balance during budget preparations, be sure to consider every source of revenue you can.
3. Mind those expenditures.
When preparing your annual budget, go through your expenses one by one and resist the temptation to merely annualize each one from the previous year.
4. Eliminate (or at least minimize) delinquencies.
Delinquencies are an unfortunate reality for condominiums and cooperatives. With this in mind, consider current expected delinquencies as bad debt expense when preparing your budget. If your property has an aggressive collection practice, you may be able to control delinquencies, but not completely avoid them. If you charge late fees, be sure to enforce them consistently – and remember, high receivables put basic services at risk for residents.
5. Don’t be afraid to make hard choices.
There’s no two ways about it: this may be the time to make some difficult choices. Your property manager may have given you a list of recommendations in a letter that comes with your audited financial statements. If so, now is the time to seriously consider those recommendations. You may also want to include a line item in your budget to accommodate accumulated deficit or a potential shortfall. As an alternative, you could also levy a special assessment. Discuss these ideas with an experienced property manager so they can provide their insight.
6. Process makes perfect.
Sometimes, how you do something is as important as what you do. Be sure your board has a unanimous opinion to approve all reserve expenditures. You should also take a close look at your internal controls to eliminate the possibilities of misappropriation or waste.
7. Put your community first.
Budget considerations don’t happen in a vacuum – they can profoundly affect your fellow owners. That makes it essential to avoid politics when it comes to budgeting. Remember, you’re all involved with your association for the same reason: to maintain and enhance the quality of life your community’s residents.
Your annual budget is more than good practice – it’s an opportunity to keep your New York City condominium or cooperative on the right track. For more budgeting insights and best practices, contact FirstService Residential, New York’s leading property management company
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