How to Plan a Budget for a Community Association
Planning your association’s budget isn’t easy. But properly planning out the budget is a great way of stabilizing the short-term and long-term financial prospects of your community. The budget covers plenty of things, such as maintenance, community improvements, social events, and other items that affect your community and its residents. When budgeting, make sure that keeping property values high is the main priority; that’s the main thing on the homeowners’ minds. But also make sure to make room for a diverse amount of other line items that affect the life and well-being of your residents. For your reference, here are 7 tips that will help your association prepare an effective annual budget.
Even though you are only making the yearly budget, you should always plan many years — every community should have 1-year, 3-year, and 5-year plans. This way you can set aside reserve funds, and forecast projects that will need to be completed in the upcoming years, and plan accordingly. Look at the yearly expenses that you know you will have, like utility rates, landscaping, etc., and anticipate how much these will increase in future budgets.
When planning your annual budget, make sure to save money wherever possible. Don’t automatically annualize each expense. Instead, look closely at each budget item, and find ways that you can make practical cuts that won’t negatively affect the community. For example, you can try to buy your items in bulk if you haven’t started, or you can reassess your current vendor contracts.
Keep An Eye On Your Fund Balance
Your association’s operating fund balance should be about the same as one month’s maintenance. If you do not meet this standard, you should try to come up with the money, and should consider an additional fee assessment. Whatever you do, make sure to avoid using any emergency line items to make up for your low operating fund. It will only cause you headaches in the long-term.
It might be hard to eliminate delinquencies, but try to reduce them as much as you can. Delinquencies should never be more than three to five percent of your community at the same time. Make sure to charge late fees for all missed payments. And consider anticipated delinquencies as bad debt expense when planning your next budget.
Be Willing To Make Tough Decisions
There’s no way around it—if you are going to create a fiscally responsible association budget, you are probably going to have to make some tough choices. Make sure you have a list of recommendations of ways to cut costs or increase revenue. You may have to make cuts that upset certain community members. Or you might have to increase HOA dues or levy a special assessment. Whatever you choose, remember that you must be willing to make tough decisions.
Follow A Strict Process
Make sure you plan your budget the right way, by following a strict process. Get board approval for all reserve expenditures, and have internal processes in place that eliminate all possibilities of fraud, waste, and abuse.
Keep The Needs Of The Residents Your Priority
This should go without saying, but the needs of the residents should be your #1 priority this budget season. You are involved with your association because you want to maintain your financial well-being and the quality of living in your community. Any budget decision you make can greatly affect the lifestyle or finances of your residents, so you must work on behalf of them.
How Clark Simson Miller Can Help You Manage Your Community’s Finances
Creating a community association budget can be very strenuous, and often forces you to make tough decisions. When you develop your next annual budget, remember that you are planning for both the short-term and long-term health of your community. If you need a professional management team to help you out this budget season, give CSM a look. We are a full-service HOA management company that offers a wide range of management services, such as homeowner communication, collections, back-office services, and more. To learn more about how CSM can improve your community, contact us online, or give us a call at (865) 315-7505.