Guidelines for Preparing Your Association Budget
Preparing an annual budget is essential for the financial stability of community associations. However, not all associations know how to effectively create an association budget. To help you with this task, here are some guidelines that will make preparing your budget a straightforward process:
- Create a Budgeting Committee: While it’s the board’s responsibility to create the budget, assembling a committee focused on this task can be immensely helpful and most governing documents permit this. The committee should consist of key members like the board president, treasurer, community manager, and chairs of finance and budget committees. With a dedicated committee, the chances of budgetary success significantly increase.
- Schedule a Separate Budget Session: Avoid planning the budget quickly during or after other meetings or events. Allocate a full day or afternoon specifically for the budget planning session to ensure that all factors influencing the finances are duly considered. Encourage all relevant members to attend the session with a clear and open mindset, treating budget planning with the seriousness it deserves.
- Define Clear Objectives: Begin the budget planning session by outlining the community’s goals for the next few years. Solicit opinions from all homeowners to create a collective vision of the community’s future. While not every homeowner request may be fulfilled, establishing objectives will help align the budget with the community’s aspirations.
- Evaluate the Current Financial Situation: Assess your community’s financial standing by reviewing records from the past two years and comparing them with the previous year’s budget. Analyze areas where spending exceeded or fell short of projections and adjust the allocations accordingly in the new budget.
- Prioritize Repair and Replacement Projects: Repairs and replacements are crucial components of the budget to maintain a well-kept community and enhance property values. Prioritize these projects based on urgency and importance, as it’s not feasible to address all of them simultaneously.
- Anticipate External Changes: Recognize that certain factors beyond your control can impact the budget. These may include economic volatility, utility rate increases, and homeowners who are delinquent in paying their dues. Taking such external factors into account while creating the budget will better prepare the association for potential challenges.
- Gather Estimated Figures: Contact vendors and agencies to acquire estimated figures for costs that may fluctuate, such as utility rates and fees from various service providers. This will enable you to make more accurate budget projections.
- Emphasize Needs Over Wants: Categorize expenses into needs and wants. Prioritize the needs that ensure a secure environment before addressing wants like landscaping improvements.
- Plan for Reserves: Allocate a portion of dues to the reserve fund annually to account for future repairs and replacements. Regularly update the reserve study to calculate the reserves, aiming to save at least 10% of the association’s current annual budget on a noncumulative basis.
- Create the Budget: With a comprehensive analysis of all factors, assemble the final budget, listing anticipated costs and estimated figures. Be cautious when it comes to understanding. The budget should cover income, administrative costs, utility costs, contract and service costs, insurance costs, and a portion for reserves. Divide the annual budget by the number of homeowners to determine the association fees.
Responsible budgeting is the foundation of financial success for any community association. By adhering to these guidelines and considering all pertinent factors, your association can proactively manage its finances and avoid potential financial pitfalls. Remember to stay committed to the budget throughout the year, ensuring the community’s long-term stability and homeowner satisfaction.
Rita Khan is the Digital Marketing Manager at Hirzel Law, PLC. She has over 15 years of experience in property management with the last five years managing condominium and homeowners’ associations. Ms. Khan holds several designations and certifications such as Certified Manager of Community Associations (CMCA), Association Management Specialist (AMS) and Professional Community Association Manager (PCAM) from the Community Associations Institute (CAI), Accredited Residential Manager (ARM), Accredited Commercial Manager (ACoM), and Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM), Certified Apartment Manager (CAM) and Certified Apartment Portfolio Supervisor (CAPS) from the National Apartment Association (NAA), Project Management Professional (PMP) from the Project Management Institute, Certified ScrumMaster (CSM) from Scrum Alliance, Professional Certified Marketer Marketing Management (PCM) from the American Marketing Association and Certified Digital Marketing Professional (CDMP) from the Digital Marketing Institute. Ms. Khan currently serves as the Chair of the CAI-Michigan Social Media Committee and is an active member of the Institute of Real Estate Management (IREM), where she serves as a member of the IREM Foundation Board of Directors, NextGen Advisory Committee, and a member of the Board of Directors for the IREM Michigan Chapter. She may be reached at (248) 986-2290 or firstname.lastname@example.org.