Monday August 15, 2016
The half-year mark has come and gone and we’re now staring budget preparation season in the face. With just a little preparation you can charge forward to tackle this budget with confidence. As North America’s leading association management company we are no strangers to annual budgets. In our experience the first step to successful budget planning is a little preparation. Here are a few quick tips to get you started on the right foot.
Think long-term
Yes, it’s an annual budget, but you’ll want to look beyond the current year. The larger your association budget, the further out you'll want to plan. Use this time to plan for projects that can’t be funded from your current reserves, as well as potential capital improvement projects for the upcoming year. This is also a great time to look at your current vendor list and determine if you need to plan for increases in their fees, or potentially bid contracts out for better value. A good association management company will have buying power that can help when negotiating better rates and fees.Look at your fund balance
Your operating balance should be, at minimum, equivalent to one month’s maintenance fees - although three months is recommended. If you’re not meeting that minimum, you may want to consider an increase in assessments to cover the gap. Be sure to consider every source of revenue when you’re forecasting this part of the budget.Be mindful of expenditures
When preparing your association's budget, go through your expenses line by line. Resist the temptation to merely annualize each one from the previous year. As you review projected vs. actual from the year you may notice that certain budget items could use an increase or decrease in funding for the next year.Minimize delinquencies
Delinquencies are an unfortunate reality in almost every association. With this in mind, consider current expected delinquencies as bad debt expense when preparing your budget. If your association has a consistent collection practice, you may be able to control delinquencies, but not completely avoid them. Review your delinquencies year-over-year to recognize any patterns for more accurate planning.Make the difficult choices
There’s no two ways about it: this may be the time to make some difficult decisions. Your association manager may have given you a list of recommendations about how to get the best value from current vendors, changes that may need to happen, or upgrades to common areas, and if so, now is the time to seriously consider those ideas. Increases in the basic costs for goods and services are common over time, and as your expenses increase, owners should anticipate a cost of living increase in assessments as well. Good planning can prevent the dreaded “special assessment.”Process makes perfect
Sometimes, how you do something is as important as what you do. Be sure to use reserve funds only for those expenses allowed in the Governing Documents, and take a close look at your internal controls to eliminate the possibilities of misappropriation or waste.Put members first
Budget considerations don’t happen in a vacuum – they can profoundly affect your homeowners. 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 the residents in your community enjoy.Your annual budget is more than good practice – it’s an opportunity to keep your association financially sound. For more budgeting insights and best practices, contact FirstService Residential, North America’s leader in association management.
Want to learn how to best maintain fiscal fitness? Read our Four Tricks to Maintain your HOA’s Financial Health. And while you’re there, download our free, 17-page white paper: Budgets, Reserve Funds and Financial Planning 101: Building a Powerful Financial Future.