Condominium Budgets

By now we're all pretty burned out by all the talk of budgets coming out of Congress in recent months. There's going to be a lot more in the near future. Don't worry, there's more to the near future. Meanwhile, if you live in a condominium or serve on the Board of Directors, it's now your turn.

End of year can be harried. It's already time to start planning for the end of the year. That means a thorough review of the association's books and planning the budget for the new year. If your Board has been doing its job throughout the year, you should be able to get through this without all the arm-twisting and control issues that our politicians have been going through.

Surely your officers have been reviewing your financials monthly and have a firm grasp on the costs of running your association. You have a finite number of bills to pay and you certainly should understand the challenges of ensuring that all the components of your property are well maintained on a day-to-day basis. Now, the challenge is to assess all that information, add planning for major investments like replacing boilers, tuckpointing, roof repairs and all the other structural concerns that might need to be addressed in the near future. Are those going require investments that place your unit owners at risk of having to pay for a special assessment?

The job can get pretty sticky when you add in the potential of having to increase assessment in order to meet the needs of your association. 

Even though you don't have a budget that runs into the trillions, this is not a task for the faint of heart. If we've learned anything from all the news coming out of Congress in recent months, it should be that budgets are not something to take lightly. A haphazard approach to budgeting leads inevitably to disaster, especially in this economic climate.

Nevertheless, it's not that difficult to do the job right.

1. Begin with all the known costs of management, contracts with vendors and regularly occurring expenses.. This is relatively easy if you start with the Profit and Loss for the last 12 months.

2. Take a good hard look at any deferred maintenance that needs immediate attention. Mechanical equipment and structural components all require careful evaluation and should be scheduled on an ongoing basis. In addition to maintenance, every component will eventually wear out – it's a fact of life. Are you ready to cover the expenses if any of these need replacement in the near future? 

3. When that roof has to be replaced or the hot water heater goes out do you have enough in your budget to cover those extraordinary expenses. Budgeting anticipates major expenses not normally handled in day-to-day operation of the property and plans carefully to pay for these costs..A separate reserve fund is critical here. How much you commit to putting in the reserve fund each year depends on prudent planning but you'll want to make sure that your reserve fun is adequate to cover worst case scenarios if you want to avoid special assessments and disgruntled unit owners.

4. Now, how are the assessments? Do they meet your projected needs for the next 12 months? Do the assessments cover all the expenses you might realistically expect to occur in your short-term and long-term planning? Do assessments need to be increased? 

It's the Board's fiscal responsibility to handle the finances and financial planning judiciously. This is not something to delegate to a management company. You may not be able to figure down to the penny all the costs that lie ahead, especially in these uncertain times. No matter how carefully you plan, stuff happens. And, undoubtedly, you will have some owners who will not be happy with your projections…especially if your planning means that they're going to be called on to pay higher assessments. Everyone has opinions when it comes to money. We've seen that play out big time watching Congress, right? Well condominium associations are no different..

There are some things you can do to avoid crisis planning.

  • Plan realistically. Don't pad your estimates but do include provision for cost of living increases, inflation and the like. And, do plan for the big items that may only occur once in 5 – 10 – 35 years.
  • Be prepared to explain and justify every projected expense.
  • Start early. Start now. Take plenty of time to review and to research  If you need the help of experts (your accountant or vendors) get their help.
  • Consider getting the unit owners involved. Perhaps the treasurer could head a committee made up of owners at large to plan next year's budget. Consider getting them to solicit bids for the larger financial investments so they know and understand how you arrive at your decisions when the time comes. This is a powerful way to educate the unit owners and gives them ownership in the process.    

Author: 7577JMM

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