RealManage Insight

Creating the Annual Budget

by Staff Writer on Sep 17, 2013 4:15:00 PM

In just a few months, association-governed communities will need to have their budget mapped out for the new year. If your neighborhood hasn’t gotten around to crunching numbers and doesn’t retain the services of an HOA management and condo management company, working with a community management professional will help expedite the planning process and ensure sound financial decisions are made. Whether the board develops a budget on its own or uses the services of an HOA manager, creating the annual budget should include the following measures.

Prioritize Community Projects

A neighborhood often has several projects coming down the pipe at once, but that doesn’t mean they must be performed and paid for simultaneously. In order to keep assessment fees at a reasonable price and preserve the project fund, prioritize your neighborhood’s projects and perform the most essential ones first.

Calculate Utility Increases

Utility rates typically rise each year, so it is important to include utility rate increases in the assessment fee proposal for 2014. On average, homes and businesses can expect to pay about six percent more for utilities in the coming year. Not accounting for the increase can put neighborhoods in a financial bind.

Review Vendor Contracts

Vendors may be under contract for the coming year, but it is still important to review the contracts to see if rate changes will occur or escalation clauses could be triggered. Communities that use an HOA management or condo management provider typically have the company acquire this information about vendors.

Review the Landscaping Plan

Landscaping is an expense that you can alter from year to year. For example, if your community has a special project for which it needs additional funds, things such as not planting as many annual flowers as usual and refreshing last year’s mulch instead of laying new mulch, can help free up money for the project.

Calculate the Cost for Products

Most communities need certain types of products on an annual basis, such as chlorine for the community swimming pool, trash bags for trash receptacles in common areas, and grass seed for reseeding bare spots in common areas. Buying these types of supplies in bulk will help minimize annual spending.

Cover Insurance Deductibles

Neighborhoods must plan to cover the insurance deductibles for things such as community buildings, community vehicles, and other insured property. Ideally, insurance deductibles should have their own fund and not be taken from a reserve account, which should be used to pay for unforeseeable expenses.

Budget for Reserves

Many neighborhoods don’t keep enough money in the reserve fund. Some HOA management companies recommend putting as much as 20 percent of income in an account that isn’t earmarked for anything. 20 percent is a lot, but a community should put as much income as it reasonably can in general savings.

Start Planning Today

The end of summer is a good time for association-governed communities to start planning next year’s budget. If your neighborhood needs help creating a budget for 2014 that considers the factors above, among others, working with a provider of HOA management and condo management services is the best option.

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