Budget Season is Right Around the Corner

By Evelyn Dufford, CMCA, PCAM

Budget season is right around the corner and we’re all getting excited.  I must confess I’m excited because it’s one of my favorite times of the year.  One of my staff it excited because it means we’re closer to Christmas.  Two unrelated topics entirely.  Well, kinda.

Creating a budget for an Association is something that a Board is tasked with each year.   And each year the membership is asked to ratify the budget.  Basically, we get our financial crystal ball out and predict what will happen and what we want to accomplish next year.  Then we go to the membership to get their blessing for the spending we are planning to do. When it comes to Christmas, we know the gifts we want to buy and how many paychecks until Christmas. If we go over budget or get carried away with the season, what do we do?  We use a credit card and pay it off with future paychecks.  Associations don’t have the luxury of credit.  We can’t get a credit card issued to the Association in case we over spend or don’t receive all the assessments on time.

Associations and their Boards are being asked to do what we as individuals and America as a country don’t tend to do.  And that is to work with a balanced budget. Now I could go on about the politics of a rising the debt limit and deficit spending, but I won’t.  I want to focus on the types of strategies Associations can use to help create a balance budget with room for the unexpected.

Here are 5 things to consider putting in this year’s budget:

1.  Bad debt – This is for the amount of outstanding assessments that are lost to bankruptcies, foreclosures or collections. Basically, it’s money that has to be written off.
2. Contingency Account – This is a line item for the unexpected.  Perhaps you didn’t expect the county to require a work to be done on the retention pond or the monument to be the victim of a hit and run accident. 2-5% is recommended.
3. Working Capital – If like many of our Associations, the working capital has been depleted for various reasons.  This account is to allow the Association to finance slow paying accounts or fund an emergency.  It is recommended to be 1 – 3 months of operating expenses.
4. Current year’s deficit – If this is year is showing a loss at the end of the year and there is very little working capital or equity, this would pay for it.
5. Working Capital Contributions – First time buyers to new Associations often pay a working capital contribution.  This helps the Association get a head start on creating a little cushion.  Why not amend the declarations to cause all buyers to contribute this to the Association?

We will be discussing these and other ideas at our annual budget seminar scheduled for September 13^th, 2011.  Click here to register. As always, let me know if you have any questions or comments at evelynd@associationserviceswa.com.