July 31, 2018 Erin Rice, Controller Education, Homeowner Tips
Now that you’ve created your timeline and its tasks, Crummack Huseby’s financial experts want to share insights on creating and implementing the smartest budgets for your community. It’s important to consider expense questions your Board should ask, what your management company’s accountant should know, and thoughts on the timing of assessment increases.
You’ll want to have your reserve study and anticipated project materials handy as you begin your review. This budget spreadsheet should include your current year budget, current year average monthly expenses, line by line proposals for next years’ income and expense, along with a comments section for notable changes. Budgeted expenses will drive the number of your assessments so start with those line items and consider each one carefully.
In the comment’s section, your manager will share notes regarding contract increases. Insurance, Landscape, Janitorial, Pool cleaning, and any other contracts held by the community should have a note explaining the proposal for the new year. If the number has not changed from one year to the next, the note should state “no contract increase.”
Go over the projects the Board has decided for the upcoming year and be sure enough funds are set aside. Discuss any significant variances for the current year. If the account is over budget, was it due to a one-time event, or is this business as usual? If it was a one-time event, there is no need to increase the budget for next year. If it is ongoing, be sure to increase the budget figure accordingly.
If an account is significantly under budget, consider whether it may be an annual expense which has not posted yet, holiday lighting for example. Or, were there concerns at budget time last year about increased expenditures? Do you need to maintain the increased level of funding for the upcoming year or can the expense be reduced?
You’ll return the budget spreadsheet to Crummack Huseby, or your property management, for accounting review. Your accountant should verify that the amount allocated for the reserve contribution is a match to the reserve study.
Each year, a number of assessments will not be collected due to lack of payment. Since assessments are recognized at the full amount billable to income, an offsetting amount should be budgeted as an expense to compensate for the amount predicted to go uncollected. They will also verify that any pass-through costs, such as Pre-lien warnings or reserve interest income, have an equal amount budgeted in both income and expense. Your accountant will also review the spreadsheet for accurate formulas as well as appropriate increases for utility expenses.
They should determine if you have prior year surplus available to help keep the assessments from rising or to recommend if an increase is in order. No one wants to hear that their assessments are going up, but the Board of Directors has a fiduciary responsibility to protect property values by maintaining the common area. In a perfect world, the expenses would be less than the current amount of assessment income and would allow the association some amount to be put in a contingency for unanticipated events.
If you are faced with expenses outpacing income, the Board will need to consider increasing the dues. An increase will be necessary if the amount by which the expenses exceed income is greater than the prior year surplus less one and a half to three months of assessments or if the reserve funds are critically low and increased contributions are necessary to bring funding up to an acceptable level.
Failure to increase dues over time can place undue economic stress on homeowners especially as communities age. It may not seem like it but increasing dues by a few dollars each year could be the best thing you do for your community.
Planning and creating a budget is no easy task. If you’d like Crummack Huseby to walk you through the process or create your HOA budget plan, our incredible financial team is here to help. Fill out the introductory questions and we’ll reach out to you quickly.
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ABOUT ERIN RICE
Erin Rice is a financial leader in Orange County as the Controller of Crummack Huseby Property Management, Inc., an award-winning company that provides highly customized and personalized services for homeowners and builders in Southern California.
ABOUT CRUMMACK HUSEBY PROPERTY MANAGEMENT
Crummack Huseby is a property management company, who understands what it takes to create a community within the community association’s they partner with. Our successful business partnerships with homebuilders, developers and homeowner’s associations have brought value to clients throughout Southern California. Our talented and award-winning managers work closely with our clients to determine the specific needs they have - to elevate, inspire and achieve their goals for their communities. If you are interested in learning more about how Crummack Huseby can help your community association with cost-effective daily service management, social and lifestyle management onsite or offsite, and financial/budgeting forecasting analysis
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