Top 5 budgeting mistakesBudget season is upon us. With all our projects at work, holiday activity planning, and association items, the 4th quarter of each year can be as dreary as the weather.
We hope the suggestions below will help you avoid common pitfalls that make the budget process a frustrating endeavor.
There are a lot of schedules to juggle to set up the Association’s main annual meeting. Not only are there multiple households with conflicting schedules, you may also have a property manager who will appear at a number of meetings in a short period. Postponing the conversation only adds to the chaos at the end. Most Bylaws specify annual budgets to be presented by November 1st.
Action: Schedule the Annual meeting to occur by October 31st if possible. At the very latest, meetings can be held by November 30th. Once this date is set, you can create deadlines among the Board to create and approve the budget.
2. CARRY OVER
Budgets are a great opportunity to review current and prior year financials. Don’t simply copy the prior year budget. You want to learn from the actual financial activity year after year. Only then can you truly project the upcoming year’s expenses.
Action: Review financials each month as they are presented. You may find mistakes to be corrected. Or you may realize certain expenses are more than you estimated. Monthly review allows you to avoid ongoing financial waste. Review the entire year financials to review patterns. Ask yourself many questions. What should be downsized, upsized, or remain as is. When will certain expenses occur again, monthly, annually, or every few years? You can budget regularly to prepare for future expenses.
Is it your responsibility to create a budget? Yes. We don’t want to put your finances solely in the hands of other people. You may not have been in honors calculus during high school but that's not important. Budgets simply require addition and subtraction - don’t let the quantity of numbers intimidate you.
Action: It’s ok to delegate the budget draft to the treasurer or property manager. They can create the draft and prepare the budget for you to review. Each board member should then involve themselves to ask questions about each line item.
We will never achieve 100% accuracy with a budget compared to actual activity. Unexpected items pop up each year. But the variance can be minimized by careful planning.
Action: Start the budget process early by brainstorming “wish list” items. Determine what needs to be done within a 12, 24, or 36 month period. Obtain multiple bids from contractors and listen to the suggestions they offer. Review the bids to incorporate into the budget. You may need to adjust your expectations or scope of work but the sooner you know the more confident you’ll feel about Association operations. Remember that owner assessments are based on these projected expenses. It would be troubling to increase assessments or charge a special assessment only to find that does not cover the projects the owners were expecting.
5. CUT EXPENSES
Though it may look good in the short run, be careful not to cut expenses out of the budget. It may increase the net income for your association but chances are that you can’t go without maintenance for very long without incurring a much larger expense. Some items like light bulb replacement can be done by owners/volunteers. However, others like common area cleaning may not be properly performed by an owner/volunteer. Keep that in mind when deciding to cut expenses.
Action: Review expenses. If an item looks expensive, ask yourself if there are alternative means to achieve the goal without cutting the item altogether. Explore those options before adjusting the budget. With every action there are alternative reactions - try to play the situation out in your mind.