Has your board and owner's association ever struggled with the following issues?
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Meeting important budget timelines
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Acclimating new board members to budget process
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Understanding manager recommendations
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​Identifying common areas of over- and under-spending
Watch as community manager and management expert Shonna Brown pulls back the curtain on commonly asked board member questions to help your association better navigate the upcoming budget season in our video "Budget Insiders: Board Steps to Success".
A Manager's view of budget season:
When you’re assigned a new community, what’s the first thing you look at?
Their expenditures, specifically the history of the association’s spending, big tickets items and other red flags. Red flags might be uncharacteristically high or low spending on insurance coverage, or underfunded reserves.
When you talk about expenditures, are you speaking in terms of capital improvements or are consistent earnings or expenditures like vendors?
When it’s a new community, I like to look at both to see what was spent from a capital expenditure standpoint along with any offset spending that was possibly overbudgeted for.
Do you have an example of how you’ve helped a community get back on track with a financial plan?
When I onboarded with the Homestead at Carrollton, they were not fully funded with their reserve lifespan. So, I took a look at their reserve study to see exactly where they were supposed to be, started planning for the upcoming fiscal year and we made decisions on where we could actually minimize their spending to fully fund their reserves. Using this approach helped them get back on track by the following year.
Why is it important that a community be fully funded?
Because you never know what could happen, so your reserve fund is there to be your “just in case” plan. It also helps communities avoid doing special assessments for homeowners because your reserve account is there to handle those capital expenditures.
Are reserve studies a good tool to help boards gauge their future financial standing?
It’s the best tool and it’s a best practice! Reserve studies pinpoint the lifespan of your capital expenditures. View our video to learn details about the reserve study process.
What is a reserve study?
It’s an engineered firm that visits the community to analyze all physical and financial assets of a property. They also look at how many more years of life a particular physical asset has, for example, “how many more year can I get out of our pool pump, clubhouse furniture before minor or major repairs are needed?”
Do these firms also provide a valuation of how much you should plan for replacement costs?
They actually do, and they can even evaluate the replacement cost of your current physical assets during the visit. Since inflation is inevitable, they give valuations with inflated prices in the event an asset needs repairs or replacements years down the road. This is another reason why reserve studies should be updated year over year.
Read 5 Steps to the Best Reserve Study Firm to help your board identify the right provider for your association.
What is “GL research” and why is it important?
GL research helps me know exactly what was spent per GL item, or “general ledger.” In other words, a GL provides historical data of what was spent in a specific community. So, when I take on a new property, I like to know what was spent using the general ledger code over the last five to seven years. That helps me understand what I need to budget for in the next two to three years.
GL research also allows boards to rebid on certain vendor services and other line items that can help reduce spending, reallocate funds or ensure you’re not paying too much.
When should managers recommend boards begin budget discussions?
Late June or early July is when boards should be having budget meetings. I personally work with my Treasurer on a monthly basis, but the board should be fully involved in the formal budgeting process by the start of summer. It’s important to start early because you don’t want to rush your finances. Instead, you should be analyzing every expenditure to the penny and have budgets approved by the end of October.
Fill in the form on this page to get a handy 6-Month Budget Planning Schedule!
Are there any legal deadlines that impact the budgeting timeline?
While every association has its own set of guidelines to follow, the budget needs to be approved before the end of the fiscal year. Know exactly what those guidelines require and ensure your budget is approved by the board. If you delay the budget process, owners won’t know how and how to make assessment payments.
Are residents involved in the budget planning process?
If a community has a budget committee, they can be involved; however, most boards handle it amongst themselves, especially the Treasurer.
What’s the best way to get resident buy-in for certain budget line items?
Communication is always critical. If there’s going to be a large, planned expenditure, boards will send out written and digital communications, and board agendas prior to a vote. And if a large expense in included (new amenity) in the mix, that’s when you should get the community involved. Read Why Transparent Communication Matters in Your HOA Budget Committee for suggestions.
What’s the importance of community demographics on budget communication?
Some homeowners aren’t tech savvy and are unfamiliar with the realities most people deal with in terms of digital communication. To that end, they may not have email addresses. So it’s important to utilize written communication or community bulletin boards to ensure everyone knows what’s happening in their association.
When looking at line items, what areas do you look for to find potential cost savings?
Utilities, landscaping and vendor contracts. Now would be a good time to meet with your vendors and compare prices with other contractors in your area to make sure you’re getting the best deal.
How do you identify budgeting red flags?
Any time a water bill spikes, that’s a major red flag, especially when it comes to landscaping. You don’t want to be under budget for a major resource like water, so community managers are reviewing those invoices on a monthly basis to make sure we catch any red flags.
How often should community managers walk their property? Why is this important?
Depending on the size of your community, managers should do a walk-through at least once a month and at most, three times each month. This is important because community managers have a “spidey sense” when it comes to what to look for that residents and boards might be unaware of. It also helps us be proactive in identifying damaged walls or pool issues so we can be problem solvers versus reacting to issues on a whim. Being solutions-oriented is what we’re all about.
Once you submit a budget, who does it go to and how does the process work?
- Treasurer and manager discuss line items
- Accountants review our recommendations and provide feedback.
- Once changes are made, the community manager shares it with the managing director for their recommendations.
- The Treasurer receives the budget, with both accountant and director feedback, to ensure it falls in line with the association’s needs.
- The board checks all line items and changes before giving approval.
- An open board meeting is scheduled so residents can witness the process.
- The finalized budget is sent to all residents. The finalized budget should also be posted to public website or forum. For FirstService Residential clients, this is the Connect Resident Portal.
What are the top three things that make for a smooth budget process?
- Reevaluating the vendor service contract.
- Consider manager recommendations.
- Effectively communicate changes with homeowners
Avoid common Budget Blunders and keep your budget season rolling along! Or, for more detailed information, check out our guide, "8 Secrets to a Better Association Budget Process".