Your budget process should start in August with a general property inspection. Take note of the overall condition of the association elements of responsibility to determine maintenance needs. Also take this opportunity to consider projects that will enhance the value of the association. Ask yourself, do the buildings need to be painted, is the asphalt in need of sealing, should a weather shelter be built over the mailboxes, does the clubhouse need new carpet, etc. Compile the list of projects, get cost estimates for the projects, then prioritize the list from most important / probable to least important / probable. You will use this list to select your projects once you complete your preliminary budget.
August should also be a time to review your current lawn care operating plan to make any changes you feel will benefit the association. Lawn care service is perhaps the largest expense of a budget, so take your time to fully review and modify the lawn care operating plan. Sometimes this means increasing the level of service (and cost) of your lawn service, however, this can also be a time to reduce or eliminate services that don’t add value to the association, such as reducing hard blade edging from 8 times a year to 6. Once your lawn care operating plan is finalized, get bids from multiple companies so you have them ready by the time your preliminary budget is completed.
Once the project list and lawn care review are completed you should be ready to start working on your preliminary budget, generally in September. The preliminary budget is comprised of all the routine expenses necessary for your association to operate. These items include insurance, administrative, management fees, legal, accounting, utilities, reserves, etc. Review all your routine expenses for the current year, along with any notes you made throughout the year regarding price changes or service modifications, to determine what will remain as an expense in 2018 and what the cost of the item will be.
Once you have your preliminary budget completed, add in the cost of your new lawn care contract, then subtract the total expenses from the income to determine how much income remains. This surplus is what you have available to spend on projects. Now is the time to review your list of potential projects to determine which ones you will complete. Enter the selected projects into your budget to arrive at your completed budget.
Once your budget is approved by the board, don’t forget to send it to the owners along with a pie chart showing them exactly what their dues pay for.
Your association should be a non-profit entity, so it is required to file a tax form with the Federal Government. Make sure you allocate funds for the preparation of this form.
It is vital that you have an accurate reserve study and that you allocate the appropriate amount of funds as stated in the study. This is not just saving 10% of your income per year. You need to save what is necessary, not just the minimum, as stated in the ORC 5311, unless a majority of the owners approve not to fund it each year.
The operating reserve (generally two months of dues as required by the declaration) is what you need to have in your operating account at the beginning of the year. If you end your current year with more than this amount you should transfer the surplus to the reserve account.
Be realistic and recognize that it is not uncommon for a few accounts to be delinquent. Make sure to account for any delinquent accounts so you don’t go over budget.
Contact Capital Property Solutions for a Free, Friendly, Property Review, or for new ideas on association management and reducing costs.
Arnold Barzak is a principal partner at Capital Property Solutions, a condominium and homeowners association management company with 25 years of experience in Central Ohio. Arnold has earned his PCAM designation, the highest professional recognition available nationwide to managers who specialize in community association management.
Capital Property Solutions serves the Central Ohio communities of Canal Winchester, Clintonville, Columbus, Delaware, Dublin, Gahanna, Grandview, Grove City, Hilliard, Lewis Center, New Albany, Pickerington, Plain City, Powell, Reynoldsburg, Upper Arlington, Westerville and Worthington.