The start of a new year always brings out the resolutions, doesn’t it? We take a look back at the year just passed and, rather than celebrating the successes, we far too often note with regret and resignation the things we didn’t do — the projects unfinished or the revisions to the bylaws that are still “in process”.
As we start 2016, there’s an opportunity for associations and their boards to do things differently, more efficiently and with specific outcomes in mind — namely, to enhance the quality of life for the community and make decisions with the best interest of all community members in mind.
It all starts with the annual budget.
Financial Road Map for 2016
This important financial road map can inform and guide all the decisions of the board in the upcoming year by carefully (and accurately) estimating the community’s income and expenses for the year.
Proper planning of the association’s budget will allow the board to anticipate expenditures, especially capital improvement projects which require more oversight and strategic implementation. Responsible budgeting is one of the most important jobs any Homeowner Association (HOA) member can do. It’s a necessary step in running the association and part of your fiduciary duties as a member of the board.
Association fees and assessments depend on how well things are budgeted from the onset.
Resolve to take thoroughly examine all projects with anticipated completion dates over the next year and prioritize. Projects deemed most important and critical to the community should be prioritized for timely completion and settling on any debt obligations associated with them. This is a critical step to enable boards to more efficiently manage assessment fees and project funds.
Calculate Increases in Expenses
Expenses increase over time. It’s a reality. Start by examining budgets from the previous three years to see the actual expenditures made by the association. This will give an accurate picture of how the money is being spent and surface any trends. Contact all utility suppliers used by the association to find out their anticipated rates for the coming year. Rates can vary significantly year to year; anticipating upcoming rates will enable the board to budget for those increases.
Review Contracts with Vendors
Contracted services like attorneys, management companies, landscaping and snow removal are an absolute necessity to HOA communities, and you rely heavily on them. It is sound fiduciary practice to review vendor contracts for possible opportunities to reduce costs. Again, examining budgets from preceding years will give you perspective how much or little the association used those contracted services.
Cover Insurance Deductibles
Operating a second fund separate from reserves to cover insurance deductibles for insured property held by the community is mandated by your governing documents. Insurance policies must be reviewed annually to accurate budget for any increases in premium costs. Any decreases in premium costs year over year should also be noted and acted upon appropriately.
Contribute to Reserve Funds
Reserve funds are held for use by any costs associated with the repair, maintenance, or replacement of property the HOA has an obligation to maintain, including parking lots, walkways, community buildings, roadways and community pools.
The percentage of income earmarked for reserve funds will be outlined in your associations’ governing documents.