Community Association Managers: Prepare for Budget Season With These 5 Key Tasks

Every Community Association Manager (CAM) knows that when the summer ends HOA budget season begins. Helping community associations prepare for budget season is one of the most critical roles of any CAM or management company and one of the most exhausting. Planning a new budget is more than just number crunching and financial wizardry, it’s loads of back-and-forth communication and data analysis that needs the input of multiple decision-makers. It’s often too much for one person to reasonably handle.

These critical HOA budget season prep steps should help CAMs scope the work ahead and prep themselves.

Task 1: Review the Previous Year’s Budget

The first step CAMs must take when preparing for budget season is to review the previous year's budget. This task is essential for many reasons, primarily because it helps establish a reasonable baseline for the upcoming year. This historical data can help managers more accurately forecast the financial needs of the HOA or condo community.

When reviewing the previous budget, taking a few critical steps is essential. First, CAMs should examine whether the budget was accurate and on point. Did the community’s anticipated costs meet the mark? Were they over or under their suggested numbers? Were there any budgeted items that greatly exceeded cost expectations? Were special assessments needed to balance out the underfunding? How many projects, if any, came in under budget?

Work with the board to discuss these questions and areas of concern. CAMs and HOA boards should investigate why some costs exceeded the budget and identify any surplus funds from the previous year that have not been spent.

Task 2: Identify Potential Cost Increases

Another crucial task CAMs must undertake during the HOA budget season is identifying potential cost increases for the coming year. This task includes researching any recent changes in HOA/condo community regulations and fees and a review of all contracts (what’s continuing, what’s up for renewal, etc.) Once identified, adjusting current budgets may be necessary to accommodate these cost increases.

CAMs must identify cost increases affecting both homeowners and the HOA itself. The higher costs may include real estate taxes, reserve contributions, contractual services, and insurance premiums.

It’s also essential that CAMs be aware of local trends in their area regarding cost inflation. Florida, for example, saw a 40% increase in insurance rates in 2023, and the current speculation is that it will happen again come 2024. Many HOAs and condo communities carry over their budget from prior years, and a 40% increase is not standard, meaning those HOA budgets likely came in short, forcing boards to issue special assessments.

CAMs should also check for updates in state law, local municipalities, and regulation updates (such as new guidelines from Fannie and Freddie Mac.) Many states have updated their requirements for reserve study frequency, percent of reserve funding, and minimum reserve contributions. The law won’t care if a community forgets to budget for additional reserve funding if something breaks down and the money isn’t there to pay for it.

Task 3: Reprioritize Projects

After reviewing the previous year's budget and highlighting possible cost increases for the upcoming year, CAMs must determine which projects and expenses require priority attention. Some projects may be deferred or canceled to prioritize urgent requirements or save costs.

This is difficult because few communities are juggling nice-to-have costs throughout their year. This won’t be a determination whether to build a new pool or upgrade the community saunas in October instead of June. Frequently, this is a decision between which repair or maintenance can wait another month or two.

This has, historically, led to a dangerous practice known as “deferred maintenance.” It’s an unfortunate reality of community associations, where margins are razor thin, and residents aren’t interested in paying more year over year. But as we saw with the collapse of a condo building in Miami back in 2021, maintenance deferment can be catastrophic if left unchecked.

Working with boards to help prioritize critical safety needs is an essential aspect of HOA budget season.

Task 4: Determine the Assessment Contributions

Once the expenses have been determined, it’s time to calculate the income. Community associations are unique in that income is predetermined by the budget, not vice versa. This is possible because the community has a fixed number of homes, meaning it is possible to accurately predict how much each homeowner needs to pay to ensure the community can cover all the items in the budget plan.

A simple formula to determine your assessment amount is to add the total amount of expenses planned to the total amount of reserve contributions needed for the year and divide that by the number of payments (such as 12 for a monthly assessment), and then divide the result by the number of homes in the community. This will give you the assessment amount per home per payment period.

Task 5: Present the Budget

The final and most crucial task CAMs must carry out is presenting the budget to the HOA/condo communities. This process presents the perfect opportunity for the CAMs to explain the reasoning behind any changes made to the previous year's budget, adjustments that may need to be made due to cost increases, and project prioritization.

CAMs must highlight the importance of the HOA budget and how it will impact operations within the HOA/condo community. Additionally, they must answer all community members' questions and seek feedback to improve the budget and community operations continually.

Most CAMs Cannot Do It All

Budget season is a crucial time for CAMs, as the financial health of their HOA/condo community is at stake. CAMs must meticulously review the previous year's budget, identify potential cost increases, reprioritize projects according to the community's goals, and present the improved budget to HOA/condo communities to proceed with these tasks. The role of CAMs is central and requires diligent attention to the finer points of the budget and community goals.

And CAMs today cannot handle all of it on their own.

Hiring a Virtual Employee (VE) to help mitigate some of the day-to-day responsibilities needed throughout the HOA budget season can significantly increase a manager’s efficiency and output. Communications with your boards, vendors, contractors, etc., can be scattered and inconsistent, and having to remember to check in repeatedly to get the work accomplished is daunting. A VE can quickly take over the heavy lifting of communication management, giving managers the time to focus on the dollars and providing a strategically sound HOA budget.

If your managers are already underwater with HOA budget season prep, contact us today to schedule your free 30-minute VE consultation.

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