It’s budget season! Are you stressed? Concerned about a potential dues increase or a large capital project that’s looming in the future? The word “budget” can be scary, so thinking about creating next year’s budget is daunting for many homeowners 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 other information to guide you and your board through the process.
If your homeowners board does not take budgeting season seriously, you put yourselves and the entire community at risk. One of the worst scenarios for condominium corporation is being underfunded, which can lead to decreased property values, potential vendor issues, an increase in dues or a special assessment – and an unhappy community. Let’s take a look at how poor budgeting can affect your community members, the board, the management team and even your vendors.
- Are forced to pay higher fees or special assessments
- Receive less services
- Face potential decreases in property values
- Become concerned about the future of their community
- Is forced to select which services to reduce
- Must deal with the extra burden of cash management
- Is unable to fulfill fiduciary duty
- Must use funds in unanticipated ways
- Becomes undependable with vendors
- Must do more with less
- Faces greater administrative burden
- Has additional workload in the form of meetings, notices and communications
- Experiences added stress
- Face hardships due to payment delays
- Experience tension in their relationship with the community
- Lose trust
- Are forced to reduce their level of services
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.
Although your board is technically developing an annual budget, the budgeting process should drive you to think long term and to consider how scheduled expenditures can actually help your condominium corporation save money down the road. Consider the next one, three and five years, and anticipate upcoming and/or potential projects that cannot be funded from your reserves. Write these down!
2. The corporation comes first.
The primary goals of your board should be to increase property values and enhance the quality of life for community residents. In order to do this, steer clear of politics, and avoid being forced into making decisions that don’t universally benefit everyone in the community.
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 three- to four-percent increase for inflation, but only add other 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. Seasonal changes can make for higher expenditures in some months than in others, so don’t underestimate these fluctuations.
5. Delinquencies are a reality.
Make sure your condominium corporation’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.
You must be consistent in how you enforce the collection of fees like those for late payments, violations, interest, key fobs, etc. Contemplate other avenues for revenue, such as rental fees, move-in/move-out fees or clubhouse rental fees.
Creating your community’s financial road map isn’t always going to be easy. However, if you approach it strategically, you can minimize the risk of being underfunded, lessen the burden of future budget planning sessions and ultimately maximize property values.
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 Ontario. Where will your community’s financial road map lead you?