Every association collects dues and fees from residents in the community. Balancing that money and making the best use of it is vital to providing residents with a good return on their investments in the community in which they live.
Ignoring Inflation
Community association boards sometimes plan budgets without considering that inflation is ongoing. Labor costs have gone up dramatically in recent years.
Some building supplies and daily household items are at a 3-4% inflation rate, while the inflation on some products has gone up as much as 200% to 300% so far in 2022, and these problems may get much worse if the supply chain issues persist into the future.
Neglecting inflation when budgeting can cause associations to overspend and can throw budgets off by quite a large margin.
Not Considering Unpaid Dues
Accrual accounting is recommended for most associations, but accrual accounting shows all income that should have been collected. You may have residents who are consistently delinquent in paying their fees, dues, collections, and fines. Associations may begin to spend this money without realizing that they can't spend it if they haven't collected it.
There are always those few residents who never intended to pay on time, and they can put your budget into the red. Just because you should have collected that money doesn't mean you have collected it already.
Poor Due Collection Processes
Some associations could easily improve their collection process, and many associations have significant income in arrears.
Residents may not know the exact date when their fees are due or not feel that they "have" to pay them on time if you don't levy fines and penalties against those who are late. Working with a professional management company to create legal and easy-to-manage procedures can quickly decrease the number of non-paying residents.
Lack of Reserve Funds
Many community associations are not reserving as much as they should. Reserve funds are important if a major project comes up or something needs to be fixed in an emergency.
When an emergency occurs and there are no reserve funds in place, the association will often be forced to go into the red or have a special assessment to fix the issue at hand. A reserve study can help associations determine how much they will need for future repairs and projects so they can make the best decisions about how much to save in the future.
Ignoring Small Expenses
Some associations will only budget for the "big stuff." However, the items you may ignore, such as paper used to send out association notices, minor repairs, or the ink used to print flyers, can add up if not appropriately budgeted.
Conclusion
Learning from the mistakes we've mentioned can help your association balance its budget and stay in the green while still meeting the needs and expectations of residents within the community when they know that their money is well-spent.
