Crucial Budgeting Tips for Condo Associations

Preparing a condo association annual budget is essential to every aspect of managing an association’s business. Adequate funds allow association operations to avoid debt, run smoothly, and to satisfy homeowners’ expectations. 

Know Who Is Responsible

While the property management company may take the lead in setting a condo association budget, the board takes the final fiduciary responsibility. However, in most cases, unless the board has members with accounting and financial experience, they need to rely on the management company’s proficiency in setting and managing budget control. A typical scenario is a budget group made up of the HOA management team, board members, and ideally, a CPA or equivalent financial adviser.

What Goes into the Budget?

There are legal requirements and association bylaws that control a condo association’s annual budget; the funds within the budget are split into operating and reserve sections:

• The operating section covers ongoing costs such as utilities, maintenance, trash removal, landscaping, management fees, accounting, and legal fees. It also covers fixed costs for taxes and insurance.
• The reserve section funds are set aside for projected future expenses such as roof replacement and unforeseen expenses requiring immediate attention like an HVAC failure, a water main break, or other essential equipment breakdowns. A reserve fund helps avoid the curse of special assessments that are the nightmare of every condo association and its residents.  

Understand Your Costs

An annual review of the condo association’s expenditures is where to begin the budgeting process. Evaluating the costs for all the items that go into the operating section of the budget is critical. Understanding the expenses helps the HOA board and management team determine ways to lower costs by bidding out supplier and vendor contracts and evaluating its NJ condo association insurance premiums. The reserve fund also needs an annual analysis. Is it sufficient to cover anticipated expenditures allocated to it, and are the reserves large enough to pay for unexpected expenses?

How Does the Budgeting Process Work?

Ultimately, the condo association board bears the responsibility to adopt and approve the association’s budget. Usually, the initial work in preparing the budget is done by the association’s management team. When ready, the norm is to send it to the finance or budget committee and then to the board itself for final approval.

Long term planning is a vital factor for avoiding unanticipated expenses that require unpleasant special assessments. Capital improvements to maintain roofs, facilities, common grounds, and amenities are items to include in a condo association’s extended budgeting process. Performing a five-year or longer reserve study to forecast such expenditures is a customary practice. But it’s not foolproof. Successful condo association budgeting operations will find ways to build up reserves for items that hit the funds that no one could have anticipated. 

Five Quick Budgeting Tips for Condo Associations

1. Compare current costs to previous years.
2. Review supplier and vendor contracts.
3. Perform an annual insurance review to add or eliminate coverages as needed.
4. Seek the same quality with lower costs and alternative suppliers where possible.
5. Rank large capital expenses; for instance, can landscaping replenishment wait until the following year while the street repairs are done this coming year?

Bonus Tip for Your NJ Condo Association Insurance Plans

Indeed, no two condo associations have the same insurance coverage needs. And it’s also fair to say insurance agencies that serve them are not the same either. Clients with Dickstein Associates Agency gain a qualified partner eager to use its condo association insurance expertise to protect and advocate on behalf of our insureds when a property or liability claim occurs. Our NJ Condo Association Insurance professionals will review your Bylaws and Master Deed and present you with the best coverage for your association and situation. As an independent agency, we work with multiple carriers to ensure you get comprehensive protection at competitive rates.  

About Dickstein Associates Agency

Dickstein Associates Agency has distinguished itself as a leading provider of personal and business insurance in the tri-state area for over 55 years. We pride ourselves on being advocates for our clients and providing them with quality and affordable coverages. As an independent insurance agency, we partner with various carriers, allowing for flexible and unbiased coverage for each client’s unique circumstances. For more information on how you can leverage all of your insurance to work best for you, and how we can secure the best insurance in the marketplace based on your specific needs, contact us today at (800) 862-6662.