Budgeting can be tough. It involves looking at priorities and the needs and wants of your community, the money coming in and going out and making it all balance. Crafting a responsible, effective budget is one of the primary ways that community association board members fulfill their fiduciary responsibilities to the community. Planning ahead and knowing what’s expected will help make the process painless and smooth!
Read on for more advice on how to best complete you next annual association budget. 
1. Hold a strategic planning session.
Get your board and association management team together to make sure everyone has an aligned vision when it comes to the future of your community. If possible, it’s great to include an auditor, attorney and insurance agent as well. Set priorities for the coming year, and pin down your level of commitment to each one. 
Phil Pool, vice president of the metro division of FirstService Residential, suggested that budgeting is a good time for a self-evaluation. “Maybe you want to sit down, take a look at yourself, meaning the building and neighborhood?” he asked. “Do you need to refresh or rebrand due to lots of new construction making your building look tired? Is that something that can be addressed with a slight increase in fees and subsequently increase our property values?”
2. Update your reserve study if needed.
It’s generally accepted that budgets today are focused around a three- to five-year plan, which is the perfect timeline for planning scheduled replacements of reserve items and ongoing preventive maintenance programs. Factoring these elements into your budget now help eliminate difficult (and costly) decisions later. 
“You should review your reserve study each year and see where you stand,” Pool explained. “Assess the condition of components scheduled for repair. Sometimes the repairs can be a delayed a year or two, delaying the expense as well.” Make sure the assessment is accurate, done by an engineer or other expert in the field.
3. Let committees do the heavy lifting.  
Coordinating and communicating between the board and your association management company should be the purview of your ad hoc planning task force. Ideally, this task force will consist of the manager, president, treasurer, and the chairs of your finance and budget committees. This is probably the best starting point as the group that will plan and run your strategic planning session. 
“When I was in the hotel business, I was on the budget task force of my own association board,” Pool said. “We were trying to identify why we had a deficit. It required multiple meetings, but over a finite time period.”
If your budget committee or finance committee is on top of your budget all year long, you may not need to create a task force for budgeting time, but it’s a good option to keep in mind.
4. Follow your vision.  
Where does your community want to be in three to five years? What things in your community need to be changed? What should be kept the same? What improvements are needed? These are the questions that you should answer before starting to compile an operating budget. This is a good time to get feedback from the community by conducting a survey of your residents. Make sure that any changes you make are in line with your community’s long term vision and mission statement.
5. Collect all revenues.
Examine all of your revenue streams, especially investments. The income generated by those investments can be applied to your reserve funds or your operating budget and should be planned for accordingly. Regardless of your choice, be sure to factor in the next three to five years. It’s important, when projecting revenues, to realize that the board cannot count on collecting every dollar from homeowners. Look at your historic trend of non-payment and factor that in to your budget, with a little extra calculated, just in case.
“Looking for additional revenue streams is huge for many communities. One easy way to bring in more revenue is to find a cell tower broker that needs places for towers. They can be placed on the roof of your high rise and make money off that space that is otherwise unused,” Pool said.
6. Consider tax implications.  
Are you planning to rent out club house space to outside groups? Open a snack bar at the pool? Consult your tax accountant and attorney if you’re planning on any projects or improvements that generate revenue. Unless those revenues are offset by related expenses, you will have to pay taxes on that income. If any of your upcoming projects will have tax implications, then make a plan for it now so you’re not surprised later. A major reserve expenditure will affect your taxes as well, so make sure your accountant or auditor is able to be part of the planning process.
7. Keep a watchful eye on trends.
Look closely at key areas of your operations and their historical costs and benefits. Talk to your utilities and service contract providers about anticipated increases and decreases. Explore ways to lower costs through technology, such as energy efficient appliances and lighting. Consider what community improvements might be on the horizon. Take a close look at payroll and its projected changes over the next three to five years – healthcare costs, specifically, can have a significant impact on your operating budget. 
“I managed a high rise luxury condo of just under 300 units that was seeing their electric bill trend upward in use. We studied all of the possible alternatives to be able to reduce consumption and employed motion detector switches in trash rooms, utility closets, storage areas and any other areas that did not see that much traffic so that we could reduce consumption from lights that were carelessly left on,” Pool explained. “We were able to pay for the installation of the switches with the savings in the first nine months.”
Pool also suggested finding out if your state market has deregulated utilities. Buying gas and electricity from a utility broker can result in substantial savings. Both the District of Columbia and Maryland allow for both those utilities to be purchased through brokers. “Develop a good relationship with a utility broker – have them stay on top of rates for you,” he said. “If you have utilities under contract for 18 months, and rates are projected to drop, you can lock in a lower rate.”
8. Collect historic data.
Analyzing past balance sheets and financial statements will help you determine what may lie ahead. Compare your actual expenditures which the amounts that were budgeted for them. This can help you avoid costly oversights or miscalculations in your upcoming budget.
To gauge your full financial stability, look at unit owner delinquencies (they should be no more than three to five percent), excess operating funds (they should equal 10 to 20 percent of annual assessments) and adequate cash reserves. It will help if the past association board has left detailed rationales for their expenditures. If they haven’t done so, it’s time for you to begin. Assist future boards by keeping careful notes on the budget throughout the year.
9. Complete the budget.  
You’ll do this by analyzing past data, projecting what you’ll need in the future, and getting real cost data from your current contractors and vendors. Your long-term budget should include categories such as income (or revenues), which includes assessments and interest from investments; administration, which includes the cost of consulting, insurance, management and audits, along with bank charges and computer services; services or contracts, which includes costs from recreation, landscape and maintenance vendors; property protection, which encompasses preventive maintenance and repairs whose costs are spread out evenly over time and lastly, utilities and capital reserves. 
Don’t think that developing your budget is the end of the process. If you stay connected to your budget, watching trends and paying attention to spending all year long, you won’t be surprised when next budget season rolls around.
There’s no reason to put off your creating your next annual budget. Just remember – you’re not planning for the next year, you’re planning for the long-term quality and longevity of your community. To learn more about how to optimize your operating budget, contact FirstService Residential, Washington, D.C.’s leading community association management company.

Monday July 31, 2017