Community Association budget season is here! It can be stressful to create and maintain a budget, but it’s never been more critical. 2022 is turning out to be a volatile financial year, and your HOA or Condo Association needs to create its most robust annual budget yet. Take a look at our 8-step checklist for your budget committee:
Establish financial objectives
“A journey of a thousand miles starts with a single step.”
We’ve all heard the ancient axiom, but it still rings true today. Often, the most difficult part of creating your HOA or Condominium budget is simply starting. Once you’ve gathered your committee, make sure to lay out your objective for the next year clearly. Some committees find it helpful to break things down into monthly financial goals. With everyone on the same page, you’ll be set up for success! Remember to prepare for more than just the next year. What do you want to accomplish in the next three to five years? Do you need to scale your HOA?
Calculate operation costs
Your community association is responsible for the monthly expenses of running the community in which you live. These expenses can include recurring services and subscriptions, utilities, maintenance costs, management fees, security, and insurance premiums. It’s important to make sure these expenses are properly documented and represented in your final budget.
To calculate your monthly costs, you’ll need to gather your invoices and bills for the month. Add up all of the charges, and then divide by the number of units in your community (i.e., the number of homes). This will give you the average monthly cost per unit.
Once you have your community association budget, you can start to look for ways to reduce costs. For example, you may be able to negotiate better rates with vendors or subscription providers. You may also be able to reduce your energy consumption by making some simple changes to your communities’ operations. By taking a close look at your budget, you can help to ensure that your association is spending its money wisely.
Review vendor contracts
If your vendor contracts are expiring, you may need to renegotiate a contract or find a new vendor. Yearly percentage price increases could be damaging to your association if not accounted for. If your current vendor’s contract is expiring, you may need to renegotiate in order to avoid any significant price hikes. If you’re unable to do so, it may be necessary to look for a new vendor. By being proactive, you can help ensure that your association is getting the best possible value for its money.
Budget for the worst
Disasters happen, and they often come with a hefty price tag. Whether it’s a natural disaster like a hurricane or tornado, or a man-made disaster like a house fire, the resulting damage can be significant. And while insurance may cover some of the costs, it’s always best to be financially prepared. By setting aside money each month to cover the potential cost of a disaster, you can rest assured that you will be financially protected even on the bad days.
Determine estimated revenue
Over the year, your community stands to collect cash from fees, assessments, reserves, and investments. Calculate expected earnings for the upcoming year based on revenue history. Is it enough to cover operating expenses? You may need to levy a special assessment or increase monthly dues. Remember, these decisions often require majority vote from homeowners, so check your governing documents and create a plan to pitch the increase in collection to your residents.
Even if you never experience a large accident in your community, reserves can be critical to the day-to-day function of your association. Unexpected replacements and repairs, or even development projects may require your association to dip into reserves. Professionals recommend at least a 70-percent funded reserve.
Account for inflation
In 2022, Wall Street is more frightened than ever of inflation. With numerous Fed Rate hikes and a bearish stock market, financial professionals recommend closely monitoring the situation and diversifying investment strategies. Spend money in areas that will increase the success of your community association and leave passion projects for the future. Reduce costs by implementing quality software to streamline data collection and retention processes.
Complete budget approval
Depending on your community’s governing documents, you may need to put your final budget to a community vote for approval. Be honest and transparent with your neighbors. After all, this budget is for everyone in the association—not just board members.
If you’d like to manage your community association budget with a professional, we’re here to help. At Ardent Residential, we’ve been providing financial services for years, and our incredible team is just a phone call or message away. Contact us today at www.MyArdent.com to get your free proposal today!