You will be receiving your association’s Budget Worksheets from our Accounting Department in the coming weeks. Because of the many issues that revolve around budgets and year end reporting requirements, it greatly helps our Accounting Department to have approved budgets in as soon as possible. Your Association Manager will be assisting your Board with this process as well.
We ask that all budgets be approved by the Board by October 31, to ensure that there is sufficient time to notify the membership and print coupons. PLEASE NOTE: the company that prints your coupons receives the majority of coupon orders as the year ends. The earlier your budget is turned in, the earlier your coupon order will be placed, thus reducing the risk of printing delays. Notification of the membership and other dues-related mailings many times must be sent by a prescribed date as defined in the governing documents of the association.
Budget Basics
Budgets are often referred to as a shot in the dark, but accurate and realistic annual budgets are possible with the proper forethought. Accurate and realistic budgets are essential in the planning of the upcoming and future budget years. Budget shortfalls and failing to properly fund reserves can have a negative effect on the financial stability of the association and can hurt overall property values. When an association starts under- funding annual budgets, it can be difficult, if not impossible, to correct in future years without extreme measures. Fund raising measures such as special assessments and bank loans are best avoided and, with proper planning, can be avoided in many situations.
A realistic annual budget now can prevent future special assessments and drastic dues increases in future budget years.
Calculating a non-profit association’s budget is different than for-profit corporations. For-profit corporations estimate income and profits first and then expenses. A non-profit association first estimates expenses and then the income or dues needed to cover those expenses; this way, dues amounts are the end result.
1st: Review the previous year’s budget as compared to the actual expenses incurred.
2nd: Identify inflation effects from increases in utilities and other services.
3rd: Identify any special projects or areas of focus in the upcoming year.
4th: Reserve funding: is a reserve study needed to help plan for future capital improvements? A Board may possibly want to budget for a reserve study in the upcoming year.
5th: Calculate the annual income needed: Annual Expenses + Annual Reserves = Annual Dues Amount. This amount is then divided equally amongst the membership or by ownership percentage as prescribed in the association’s governing documents.
A key point to keep in mind regarding dues increases is that gradual increases to keep up with inflation are always much more palatable to memberships than drastically increasing dues in one budget year.
It goes without saying that no one likes dues increases and no one likes serving on a Board when there is a dues increase; but delaying this eventuality generally only makes matters worse in the coming years.
If your governing documents limit increases, and there is an unavoidable shortfall in the annual budget, a budget plan for deferring or eliminating certain expenses is many times the only acceptable option. Expenses such as landscaping can be reduced by limiting additional items such as putting out pine needles or seasonal flowers. Care must be exercised in delaying painting and other preventative maintenance items. Failing to paint or clean out gutters can cause wood rot and other water damage that would create future expenses that would greatly exceed any benefit that would come from delaying these expenses.
While nothing can generally be done for an association’s past budgeting shortfalls, proper planning for the future can greatly improve the financial stability of the association
Quick Points Regarding Budgets
While calculating future expenses, always consider if a prior year expense was a one-time expense and will not occur again the coming year.
When calculating seasonal expenses such as pool and landscaping, care needs to be taken when using the “Year to Date” amount on the Budget Worksheet because the expense may not be representative of a total annual expense.
Almost all association governing documents require an annual budget to be prepared and approved by a specific date; generally at least 30 days from the beginning of a fiscal year and in some instances 60 days prior.
If an association’s Board approves a budget with a dues increase and the association’s governing documents do not specify a notification date for an increase, we strongly recommend a 30 day notification by mail to the membership.
When dues are increased, coupons with the new dues amount noted are usually sufficient notification of an increase to the membership unless the association governing documents require another form of notification. WDMC
Copyright – William Douglas Management, Inc. 2017