Believe it or not, it’s already time to start planning, preparing and approving the 2015 budget for your condo, townhome or HOA community association. This process is actually one of the most critical elements of creating and sustaining a healthy and fiscally sound community association. As a result, I’d like to share the top do’s and dont’s to take into consideration before approving the 2015 budget.
10. DO take into account historical spending when planning your new budget. But also take into consideration projected increases in utilities that may be higher than the norm.
9. DO take into account the possibility of line item overages such as snow removal, drywall repairs and other building repairs line items. Last year, most budgets ran overbudget in Chicago due to high snow removal expenses and due to the freezing temperatures that caused a dramatic number of pipe bursts. And this year may be an even worse winter.
8. DO integrate your 1 year operational budget with a 5 year capital spending plan (and/or a reserve study). This will help ensure that your assessments are sufficient enough to properly build future reserves to pay for necessary capital projects.
7. DON’T wait until the last minute to start planning your 2015 budget. Start today and ensure it is approved by end of November at the VERY LATEST.
6. DO remember that the operating budget is designed to pay for the day to day expenses AND fund capital projects. Ideally, as a rough rule of thumb, you should save AT LEAST 10% of the operating income into reserves.
5. DO pay extra close attention to the possibility of uncollected assessments. In fact, it is recommended to include a line item on the expense side to write off uncollected income such as assessments.
4. DO raise assessments as necessary and appropriate in order to minimize the possibility of future special assessments. The board of directors have a fiduciary obligation to maintain the common elements and the association should maintain healthy reserves in order to proactively address maintenance and capital repair/replacement projects.
3. DO treat the budgeting process as one of the MOST important actions and obligations of the board and especially of the treasurer.
2. DO involve the homeowners in the budget approval meeting. Don’t simply ram a new budget through at a board meeting. It truly is critical to engage the homeowners in the budgeting process.
1. DO create a capital planning committee if your association does not already have one. It may be too late for the 2015 budget process but capital expenditures are the most expensive and it is CRITICAL that they homeowners have a say in the large scale capital expenditures of the community association.
Budgeting for community associations is a critical function. The board of directors are obligated to ensure that the association has the proper level of funds to ensure that both day to day expenses as well as capital expenses are affordable by the association. In addition, the board should strive to minimize the amounts and number of special assessments to pay for large scale expenses. This in turn will help maximize the ROI of the homeowners that have invested in the association.
About the Author:
Salvatore J. Sciacca aka “Condoboss” is one of the nation’s leading experts in the community property management industry and is also recognized for his blogs and insight on personal and organizational transformation. He is also the President and Founder of Chicago Property Services, Chicago’s #1 community property management company specializing in management and operations of condos/townhomes/HOA’s of 100 units and under. Salvatore is also the founder of managmycommunity.com (MMC), which is a state-of-the-art online support portal for community associations.
With over 20 years of industry experience, Salvatore is recognized for his extensive knowledge of capital planning, preventative maintenance, cost-saving measures and community building techniques. He holds industry stature as a Certified Manager of Community Associations (CMCA), the designation of Association Management Specialist (AMS) and is fully licensed as a manager (License #: 261.001386) through the State of IL.
Salvatore can be reached at: 312.455.0107 x102 or at [email protected]pertyservices.com.