Embrace Condo and HOA Budget Season with Confidence
As summer gracefully bows out, another season comes into focus. While most people welcome the arrival of fall, for boards of directors in Homeowners Associations (HOAs) across the country, it marks the onset of what can often be a daunting period – “budget season.” Budget meetings can be flashpoints for diverse ideas and perspectives within the community, sometimes leading to conflicts and tensions. However, budget season is not just about numbers; it’s an opportunity for reflection on the past, assessment of current needs, and planning for the future. By approaching this task well-prepared, there’s no need for anxiety. Let’s explore a guide to ensure a successful year of community association governance. It’s time to embrace Condo and HOA Budget Season.
Step 1: Documents
Begin by gathering your association’s financial documents, ideally spanning the previous two years. The more historical data you have, the better-informed your decisions will be. This foundational step is crucial for effective budget preparation during Condo and HOA Budget Season.
Step 2: Research
Thoroughly scrutinize every line item in your budget. Look for discrepancies or shortfalls, such as instances where last year’s budgeted amount significantly differed from the actual expenses. If, for instance, you budgeted $20,000.00 for water last year, but the actual bill amounted to $28,000.00, it’s imperative to account for this difference in the new budget. Additionally, reach out to utility providers to inquire about potential rate increases. Careful scrutiny ensures that each line item reflects real-world expenses, helping to maintain financial accuracy.
Step 3: Plans
During Condo and HOA Budget Season, set clear goals for your association that encompass preventative maintenance, capital improvements, and building reserves. Assess any projects that can enhance the quality of life for residents and potentially increase property values. Sometimes, investing a bit more money in your community can pay off handsomely by improving property values and the overall living experience.
Step 4: Value
Seek opportunities for cost savings by engaging with existing vendors to negotiate lower prices. Call them in for meetings with the board and carefully review contracts for built-in price increases and renewal terms. While exploring cost-effective options is essential, remember the wisdom that “value is remembered long after price is forgotten.” Prioritize value over simply opting for the lowest price, ensuring that you are getting a quality deal rather than a cheap one.
Step 5: Expenses
Give special attention to the top three line item expenses: insurance, utilities, and labor costs. When it comes to insurance, don’t renew your coverage without a thorough review. Consult with your broker to assess whether your coverage is excessive or insufficient, and explore alternative carriers that might offer the same coverage at a lower rate. Savings can also be found in utility bills by bringing in experts to review usage and exploring energy-efficient options. Investing in LED lighting and water-saving devices can lead to substantial budget reductions.
Step 6: Problems
Avoid the temptation to apply temporary fixes to recurring problems, as these often result in higher costs in the long run. If, for instance, you’ve been patching up a roof annually, it’s time to consider a full replacement. Waiting for things to break down can lead to more significant expenses down the road. Budget preparation requires foresight to predict and address the association’s future needs effectively.
Step 7: Delinquencies
Review your delinquencies and consider creating a line item for bad debt. Even during times of economic stability, delinquencies and foreclosures can occur. If your community has incurred losses due to bank foreclosures in the past, it’s wise to budget for potential bad debt. Delinquency collection strategies should also be reviewed, and it might be worth exploring the services of a collection agency to manage delinquencies and slow payments effectively.
Step 8: Funding Reserves
Failure to adequately fund reserves is a governance error that can jeopardize your community’s well-being. While funding reserves may necessitate raising maintenance fees, it’s far preferable to avoid surprise special assessments when significant capital improvement projects arise. Consider engaging a reserve specialist before crafting your budget to ascertain future spending needs and include reserves as a vital component in your budget.
Step 9: Putting it all Together
Once you’ve meticulously gone through each of these steps, convene a meeting and plug in the numbers. Model your budget using a spreadsheet, which will provide a clear picture of what your budget for the upcoming fiscal year will look like. Remember that maintenance fees naturally tend to increase annually as communities age and inflation takes its toll. Unless substantial savings have been identified, some increase in maintenance fees should be expected.
As you craft the budget for the coming year, remember to consider the unique needs of your community. Regularly reviewing financial reports and assessing previous budget performance is crucial. Do not underestimate the importance of reserves; they are the cornerstone of your community’s success. This thorough preparation will empower you to create the most accurate and effective budget for the year ahead. Ensure all board members are informed and involve owners who are not on the board in the discussion. Budgets often face challenges from members who are less familiar with the process, so be ready to explain and justify any increases to the membership.
Remember that the financial stewardship of a condo or HOA extends beyond just adopting an annual budget; it’s an ongoing, month-to-month process where the board continually reviews the budget against actual costs. These steps are central to the fiscal health of your community and its property values. Embrace Condo and HOA Budget Season as an opportunity for responsible financial planning and community improvement.
