How to Improve Your Association's Financial Stability this Budget Season

Are you adequately meeting your operating expenses, or are you cutting corners to AVOID raising assessments? This is an important question to ask because the board of directors has a fiduciary responsibility to ensure they have adopted an efficient budget that will meet their actual operating expenses. 

Instead of asking how you can cut corners or services to avoid assessment increases, you should instead ensure that you are providing the level of services your homeowners expect. Just as importantly, funding reserves need to be adequate enough to ensure there are resources available to repair and replace major infrastructure components (i.e. street resealing/resurfacing, pool resurfacing, pool pumps, painting, etc.). Here are some tips on how to improve your association’s financial stability this upcoming budget season. 

 

Consider CPI on an Annual Basis

Consider CPI (Consumer Price Index) on an annual basis to ensure that you can cover the rising costs of your service providers. At the very least, a discussion should be held every year at the budget time regarding increasing assessments in concert with CPI. The companies providing services to your community have employees, and they need to pay them appropriately. As with most professions, there is an expectation that, at a minimum, salaries will increase with CPI to meet the cost of living.

 

Understand the Ideal Percentage to be Funded in Reserves

For your budget’s reserves, the goal should be 75% funded or better. If you are below 75%, you should ensure that you are working with your management team and reserve study preparer to create a plan that gets you to this goal. This is important because if your community isn’t able to address the repair/replacement costs of major components, costly deferred maintenance will occur as a result. 

Large maintenance costs can devastate communities and lead them down a path toward special assessments and a decline in pride of ownership. These factors can lead to an increase in tenant percentages, a change that can affect lending within the community and generally degrade home values—which is the board’s fiduciary responsibility to protect.

 

Conduct a Reserve Study

To avoid costly deferred maintenance and special assessments, conduct a reserve study. A reserve study is a helpful tool that should be used as a guide as you consider your budget on an annual basis. To ensure the best integrity of the study, involve your service providers to inspect all major components and issue a letter confirming whether or not they need to be repaired or replaced in the coming year or if the life should be adjusted. Make sure to confirm the life of components with service providers; some may be extended, others may be cut short. 

As an example, I’ve had gate operators that were on schedule for replacement. The gate service provider inspected the operators and issued a letter stating they were in fine working order and would not require replacement. We ended up gaining another three (3) years on the operators, maximizing their useful life and retaining those dollars.

Another area to take a hard look at are your pool components. Have these inspected annually by the service provider? Some components may be extended or substituted out for a more efficient or less costly alternative. 

The key takeaway is you should involve the people that work with these components and have a piece of solid working knowledge on what needs replacement or may be able to wait another year. When doing this, you also have the chance to ask if there are better or more energy-efficient products out there that may provide ROI over time or have a greater life than the current component. Always be on the lookout for innovations in technology, energy, wrought iron v. aluminum fencing, wood v. vinyl, etc.

 

Plan for the Future

Are there any reserve elements that should be added? Where do you want to be five or even ten years from now? Are you going to need to renovate your street scene or update your common area facilities? What about the overall landscaping? Plants have a specific lifespan but are also subject to disease or blight, which can happen unexpectedly and be costly. It makes sense to have a line item in reserves for landscape renovation.

If you have entry gates and other types of technology platforms, work with management to stay knowledgeable of options on the market that may be beneficial for your community, and provide efficiencies and ROI. Additionally, as you need to replace your lighting fixtures, look at the benefits of converting to LED. The energy savings and reduced labor costs can be significant.

Doing just a few of the above items will improve your association's financial stability. I applaud all-volunteer board members for their spirit of community and willingness to roll up their sleeves and work with the best interest of their communities in mind! Wishing you a productive budget season and continued success!

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ABOUT MARGO CRUMMACK, CCAM, PCAM, CO-FOUNDER, CO-PRINCIPAL, CEO

Before Margo co-founded Crummack Huseby Property Management, Inc., she was an industry leader, using her innovative thinking to help her previous employer exponentially grow their business. Since 1999, when Crummack Huseby began, she’s continued to utilize her forward-thinking abilities to create efficiencies for clients and their communities.

It was over 19 years ago when Margo saw a need for a more customized and personalized approach to community management and formed Crummack Huseby with Sandra Woods Huseby. Their mission was a breath of fresh air within their industry:  to create an open dialogue with communities, to focus on the core of a community, and to customize management styles to suit what’s best for that particular community. “I teach our team members to work with the board, but more importantly, to seek and embrace the heartbeat and attitude of the communities they serve.”  Since 1988, Margo’s unique mission has inspired change within communities and insightful contributions to the industry.

 

 

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ABOUT CRUMMACK HUSEBY PROPERTY MANAGEMENT INC.

Orange County, California, based Crummack Huseby Property Management, Inc., manages many diverse HOA’s and master-planned communities in Southern California. They have added value to communities by working with HOAs, homebuilders, and land developers through their collaborative and customized approach. Crummack Huseby’s personalized philosophy to community management has allowed them to successfully discover and develop one - of - a - kind programs for new and existing communities.  They offer professional business planning, governance, community management, financial only management, planning, and forecasting services for community associations. They also have been recognized as one of the Best Places to Work by the Orange County Business Journal in 2015, 2016 and 2017. Founders Sandy Huseby and Margo Crummack each have more than 30 years of experience in Common Interest Development (CDI) management. Crummack Huseby Property Management obtained an AAMC® Accreditation status which highlights their focus and commitment to deliver total customer satisfaction.  If you would like to learn more about Crummack Huseby Property Management Inc., they look forward to learning about your community and understanding your needs and how they can best support your community. For more information -  Start a Conversation, email info@ch - pm.com, or call 949-367-9431.