Annual budget planning is among the board of director’s biggest responsibilities. Poor fiscal management could be devastating for an association. Conversely, healthy planning and making smart budgetary goals are keys to helping your association thrive in good times and bad, like when a devastating storm broadsides your building and rips off your roof.
Here are five useful things to note when conducting annual budget planning and review meetings for your condo association:
1) Revenues – How much money coming in will dictate how much money can reasonably go out at any given time, and the majority of condo association revenue generally comes in the form of association dues.
2) Expenses – Your association’s operating expenses will vary based on the services provided and the overall maintenance, operations, and upkeep of the community. You may also have seasonal expenses that are important to note in your budget as well. Track expenses over time to note any trends that may be useful for planning.
3) Reserves and your reserve schedule – Reserves are monies set aside for long-term repair and replacement of common area properties, such as a roof replacement, pavement resurfacing, or any other deferred maintenance cost exceeding $10,000. It is also important to include a reserve schedule with the proposed budget, which can be calculated by estimating an item’s total life and its remaining life in order to determine pending replacement costs. Worth noting is that reserve funds may only be used for those items to which the funds have been allocated (unless voted on and approved by a unit owner majority).
4) Delinquency bad debt – As you review delinquencies, it’s useful to check your association’s declaration for policies and regulations on late fees, interest, liens, and foreclosure of the property. Keeping bad debt to a minimum is a critical factor in your overall budget planning.
5) Assessments – These differ from other association dues in that they are generally used for one-off expenses that require additional funding and when money in the reserve account isn’t allocated to meet the need.
Annual budget planning is a big job for condo associations with many factors to consider. As you dive into yours, keep an expert close at hand to ask any questions. We’re here to help at the law offices of Dania S. Fernandez & Association, P.A.