Effective budgeting and budget management is critical to community association management. It’s one of the most important tasks for the property manager and board. A budget is a simply a projection of the money needed by the association to cover operating expenses and fund major projects (reserves). An effective budget balances revenue, expenses, and savings.
Especially in the current inflationary times, budgeting can feel like an overwhelming task. It doesn’t have to be if you start early and maintain open communication among the board and community. We’ve been helping community associations with their budgets for over 20 years. While you may follow a different approach, here are best practices that we’ve seen:
- Make it a group effort. Include the property manager, treasurer, and interested residents (if they agree to treat the association like a business).
- Agree on goals and objectives. Do you need to focus on aging assets, catching up on reserve funding, or minimizing dues increases? Better to agree up-front on your budgeting goals.
- Review your current financial situation. Look at last year’s budget, documenting the reason for any major variances. Look for obvious opportunities for savings or increased expenditures.
- Review contracts. Focus on the most significant contract expenditures first, like landscaping or insurance. Confirm they are current, and meet with representatives as needed to look for ways to cut costs, or at least minimize increases.
- Analyze the reserve fund. Ensure that your reserve study is current and your reserves are funded according to plan. Odds are you’re underfunded due to recent cost increases. Don’t kick the can down the road. Start closing the gap immediately.
- This is one of the tougher tasks. Talk to the committees to understand their needs and wants, and then prioritize. Are more flowers really an A priority?
- Create a draft budget. This is the first opportunity to review revenue and expenses together. Be realistic and conservative. For example, you probably won’t have 100% dues collections, and the clubhouse won’t be rented every day.
- Make the budget work. Through multiple iterations (that’s normal!), determine the best mix of expense reductions and dues increases to balance the budget. Everyone understands our current inflation rates, so a dues increase may be easier to justify this year. Cash flow is also important, as you’ll need to have money available with invoices are due.
- Prepare the budget presentation. Put yourself in the recipients’ shoes and discuss the entire process from initial goals to the current inflationary environment. Treat it like a sales pitch, because it really is one…
- Present the budget for approval. Present to the board, but also consider a community town hall meeting. Be patient. You have lived this for many weeks, but this is the first-time others are seeing it.
The future of your community is at stake
We don’t mean to be overly dramatic, but budgets protect property values by maintaining common areas while ensuring the safety and well-being of residents. A well-planned budget also helps the property manager and board make information business decisions. It often requires tough decisions, but avoiding or delaying major expenditures could put your community (and residents) at risk.
You don’t have to do this alone, In addition to your budget committee, our experienced CPAs can help you develop an effective budget. Even if you just have a few questions, please give us a call!