Seven Steps to Prepare the Annual Budget Review
The arrival of the fall season means pumpkin spice lattes and cooler weather. For board members, it also means reviewing the annual budget. We at Condominium Associates want to help you make this process as painless as possible. Here are seven steps that board members can follow to prepare for the annual budget review.
1. Create a Careful Business Plan
The best way to plan for the coming year is to create a business plan. The plan should include all the goals the board would like to achieve for the following year. Doing this will help the board figure out what needs to be in the budget. The business plan should be completed as soon as possible for timely approval.
2. Send out Requests
Be sure the board is getting all requests for proposals (RFPs) for contracted services for the coming year. DO NOT just estimate costs. The RFPs need to go to many vendors that the board is using, including, but not limited to, lawn maintenance services, janitorial services, pool management, trash removal and, insurance policies. The sooner these go out, the sooner the board can get started on the budget.
3. Evaluate Maintenance and Utility Costs
Look over the previous years' costs for maintenance services, utilities, and repairs. Assess whether the property will need any additional maintenance for the coming year. Utility costs could also increase, so boards should calculate what the costs will be for the upcoming year.
4. Examine the Reserve Fund
It is essential to examine the reserve fund thoroughly. In the state of Florida, Florida condominium associations must fund reserves for any repairs over $10,000. This amount includes, but is not limited to, roof replacements, painting buildings, and resurfacing pavement. When was the last time you had a reserve study completed. If it was more than 5 years ago we recommend getting a new one.
5. Keep Track of your Numbers
Once the board completes steps one through four, you should keep track of the budget created using a spreadsheet or some other budgeting tool. Maintain notes on all calculation methods and budget strategies for future reference.
6. Calculate Anticipated Income
It is typical for HOAs to practice zero-based budgeting, so therefore boards should not include any funds leftover from previous years. Instead, to arrive at the amount each homeowner will need to pay, boards must assess all other sources of income. This amount includes any late fee income and any other income from reliable sources. Once the committee comes up with a definite figure between income and expenses, they can calculate the number of assessment payments.
7. Share the Budget with Community Members
After the budget gets approved, be sure to share it with community members. Homeowners are entitled to review the budget, and they expect to see it, too. Transparency and teamwork are at the heart of a thriving HOA.
Conclusion
Always give yourself plenty of time to work on the annual budget. Be sure to work one step at a time and get the community involved in the process. Take into account any expenditures from the current year, and don't forget to make predictions for expenses for the coming year. Once you are clear on the income for your HOA, you can avoid problems. Remember budgeting is your best educated guess. There will always be things that come up that aren’t anticipated so having a contingency line item is always a good idea. Now you can enjoy a beautiful autumn season knowing your HOA is financially stable.