The fall is here, kids are back to school, and the air will soon be crispy with leaves turning to those beautiful fall colors we all love! aaahhh maybe you have a road trip planned for pumpkin picking or plan to take a ride up to Vermont for mountain biking? Fall is a fun time of the year but it is also a great time to take a moment to prepare for next year’s HOA budget. Below are 5 things to think about while you are enjoying your yummy apple cider drinks:
- Take a look at the budget this year to date: Yes, it seems obvious but many people don’t think to take the time to look at expenses in a detailed way in October. Look for areas where the amounts in the current budget haven’t covered costs year to date and dig to find out why. For example, did you budget correctly this year for snow removal or was there just one huge storm that threw off your numbers this year? Are you over or under year to date in maintenance costs? Did you put enough into reserves as planned for this year’s budget? Answers to these questions will help you prepare for planning next year’s budget
- Take time now to discuss and plan for any projects or upgrades for your building for next year: Do building carpets need a deep cleaning or perhaps replaced? Is the lobby looking old, does it need repairs or painting? Any new project needs or requests for next year should be discussed now in the fall. Then, the Board should prioritize the projects by urgency and cost and then rank them into a priority order. The top 2-3 projects should be estimated for cost. Take a look at the budget and see if you can accommodate the costs with current income. Also, if possible get some estimates on projects now so you can budget accordingly for next year. Finally, discuss a plan for the priority projects. Make a decision on what can be done and plan to budget for remaining in future years.
- Review your reserve fund contributions now: Ideally, your HOA reserve fund analysis should be updated every 2 to 3 years to make sure you are contributing enough to cover the forecasted expense for replacing or renovating the major components of your building. When planning the budget, review if you have been contributing enough this year. Ask a lot of questions and think about the funding to replace major components like a roof replacement into the future. Does your current budget have a reserve contribution line item? Has that contribution been made for this year or will it be made at the end of the year? Have you contributed enough in prior years? Take a look at the reserve study again and think about the last time it was completed. Is it time to update the reserve fund analysis again? Many financial institutions are requiring a line item of minimum of 10% of income budgeted to go to reserves. Ask yourselves, are you meeting that 10% minimum?
- Sum up all anticipated yearly expenses for next year: Now you can add up all expected expenses which occur yearly, add in any priority projects, adjust for the reserve contribution and understand total annual costs and how they then will break out monthly. Also, make sure to ask your property manager or vendors if there is any expected increase in costs. If someone on your Board can work with Excel, use a spreadsheet to add up all costs to get an annual amount and then break it into a monthly amount.
- Next, look at your anticipated income for next year: Add up all the income received from HOA Assessments, Fines, Move Fees, etc. Take a look on how that income compares to total expenses. If you are in a surplus, consider trade-offs. Should you do more projects this year, should you add more to the reserves, etc? If you are lower on income than expenses, you need to discuss how to cut costs or eliminate priority projects or increase owner monthly assessments. You also have options for one time assessments, bank loans, etc. Make time now in the fall to review the pros and cons of each and come to an agreement to make the hard choices.
In summary, it is helpful now, in the fall season, to set aside time to review your existing income and expenses and have conversations with Owners and Board Members about next year's budget and planning for the future. You may have to make some hard choices and have some heated discussions but the important thing is to prepare now and take time to budget correctly for next year. If you wait until December, the time to have open discussions and prioritize plans may have already passed and you may have to deal with some painful surprises!