Lifestyle Blog

Budgeting for Board Members

Posted by Kara Cermak, CMCA®, AMS®, PCAM® on Sep 8, 2021 9:40:00 AM
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Budgeting is often considered one of the more challenging parts of community management. However, I want to flip that script and consider that it can be one of the best tools to plan for your year ahead, and it can be fun learning so much about your community. But everyone should participate because, as I always like to say, we can do whatever we want to do in the short and long term, but we have to pay for it. So there’s a balancing act. Here are some tips to help you in the process:

  • Learn how to read your financial statements. Your financial statements are there to tell a story, and as a volunteer, you must understand what that story is. There are three different types of financial statements – which is yours?  
    • Modified recognizes revenue when it gets billed and expensed when they get approved for payment.
    • Accrual recognizes revenue when it gets earned and expenses in the month incurred.
    • Cash recognizes when cash is received and expenses when payments get cut.

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It’s important to know which type of financial statements so you can adequately read them currently and budget with that preparation in mind. 

For instance, if your water bill is vastly under budget, is it because you get billed quarterly, and your financials get prepared on a cash basis? It’s important to know because you could plan to spend money that you don’t have. 

RealManage has a board member training that you are always welcome to attend to dig a bit deeper into these differences. Send me a message if you are interested in attending – kara.cermak@realmanage.com.

  • Do you understand what expenses make up your line items? For instance, a general expense that is perfectly acceptable for one-off expenses that don’t need to get tracked individually – what makes up that line item? If you are over or under budget, do you know why? Hint – you may not always know why – Mother Nature has a way of telling us about our expenses despite our best efforts. But if expenses are consistently over budget maintaining a fence, for instance, maybe it’s time to consider replacing that fence from your reserve funds, thereby saving that maintenance expense for some time if done correctly.
  • Do you have a reserve study? If you don’t, then your budgeting is not complete. It takes a professional to evaluate the useful life of a particular component for your area and then evaluate the remaining useful life of YOUR components. Additionally, they will assess your current financial position related to this inevitable replacement, and they will advise what you should be setting aside each year for that replacement. “But I won’t even be here in 10 years to replace the roof.” That may be true, but the roof is currently over your home, so it only makes sense that you would contribute your fair share to its eventual replacement. Meet with your reserve study provider if you have any questions or concerns about assessing your components. In the wake of the Surfside Condo collapse, it is incumbent upon all of us to be certain that our infrastructure is sound.

What projects do you intend to accomplish for the coming year? Do you have rough estimates? For instance, you may be in a painting cycle, and year three is coming up for the next fiscal year. In this case, it should be pretty easy to determine the amount of money required for the coming year. You must plan for that expenditure, ensuring that you have the proper amount in reserves to cover other necessary repairs and replacements. Remember! Your reserve funds are not a savings account. The funds have been set aside for the future repair and replacement of your standard element components – and you should spend them! Always according to your long-term plan! Has Mother Nature wreaked havoc on a particular component? 

You may need to consider the potential assessment increase necessary along with its impact on your community and consider funding those repairs through a bank loan, for example. (Rates are excellent for loans right now, so perhaps replacing those components with today’s dollars will save you money! Something to consider.)

Work with your community manager! The volunteers and your manager know the nuances and intricacies of your community. 

When we work together, we can accomplish anything for your community.

Topics: HOA | Condo Management Services, HOA | Condo Board Responsibilities and Education, HOA | Condo Financial

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