Next, make sure your board understands and adopts certain basic tenets:
- Your fiduciary duty requires consistent planning, the application of standard business practices, and, where applicable, mandates of your state law.
- You can’t accomplish fiscal security and structural stability in a single budget cycle. A three- to five-year model works best.
- All decisions must be based on the objective, its affordability, the benefit to the association, and adjustments for uncertainty, which should be formed by consensus.
- Always have proper reserves—they’re akin to insurance, and you wouldn’t underinsure your building. Adequate reserves allow you to spread the uncertainty and cost of major repairs and replacements over a determined time.
- Special assessments aren’t intended to cover items that are typically capital reserve items. If you’re passing one or more special assessment a year, it’s time to increase your assessments because you’re probably not prepared for an emergency, either.
Be smart and conservative
Most service costs and contracts, utilities, and the economy in general are unpredictable. Couple that uncertainty with the occasional emergency and the fact that many small- to medium-sized associations are underassessed and underreserved, and your board needs to be conservative in its projections. For example:
- Base income on assessment receivables only. Anything else is speculative.
- Adjust your association’s cost projections to reflect today’s economic conditions, not what you hope the economy will look like in the next year.
- Operating funds that you project will remain at the end of any year should be between 10-20 percent of your association’s annual assessments. In addition, you shouldn’t consider those amounts part of the available dollars when you prepare the next year’s budget.
- Provide a line item for your insurance deductible.
Look for savings
Cost containment isn’t easy, but if your board adopts routine steps, you’ll produce savings. Have an annual onsite insurance evaluation of all of your buildings, no matter their size. Also have a reserve study or general inspection performed every three to five years to coincide with your three- to five-year budget plans.
Project your cash flow for the year on a monthly basis. That will allow you to hedge against a shortage during the periods of your association’s greatest expenditures. Think about energy efficiency. Whenever possible, replace older equipment with energy-efficient solutions that will cost less and provide a substantial rebate over time.
Remember that as board members, you’re held to a [high] standard when handling and making decisions concerning association funds. Good budgeting stabilizes finances, which maintains your owners’ quality of life, allows for continuity of services, and minimizes the chances for the unexpected.