09 Oct Preparing an HOA Operating Budget During a Global Pandemic
While we all know the basics of HOA budgeting, we may not fully realize all the implications (to the budget and budget process) of COVID 19; or we may be unsure of how to plan in times of uncertainty.
We move through preparing our operating and reserve budgets (used to cover unexpected or rare expenses) with some internal discussions. Should there be reserve budgeting now for pandemics? Will this (pandemic planning) be an expectation beyond COVID-19? Will we be required to cut expenses and close amenities once again?
There is no doubt that COVID-19 more than likely fits in various places in your operating budgets.
While you may increase your budget each year, perhaps you’re unsure whether you should consider a larger increase for 2021. Having an in-depth and realistic discussion of each scenario is the best place to start. A property management company that provides fiscal responsibility and complete accessibility can help identify cost-saving opportunities and streamline expenses, crucial to the budgeting process.
Let’s dig into some timely discussion points for you and your board.
Of course, you will be able to accurately list your contractual services, like you do every year. It is probably more realistic to include the already increased cleaning, maintenance, and other service providers into 2021, regardless of how COVID is currently playing out in your area. In the best-case scenario, you will not need the entire budget. But you will also want to have planned for the worst-case scenario. What happens if we end up back in a shut-down scenario? Do your vendor costs increase or decrease? Creating a forecast based on 2020’s worst month may be beneficial.
While costs like association management, contractors, and other professionals are necessary, it’s important to list those that can be backed off or put on hold should we experience another shut-down. Like with vendor services, we are now planning both for what will probably occur and what could occur (more on this later). Working with a professional management company should allow you to minimize the need for additional administrative costs.
Analyze your insurance premiums, and whether or not changes need to be made. In many markets, property insurance premiums are increasing by more than 10%. If 2020 taught us anything, it was to plan for the unexpected. More HOA’s are digging into discussions around disasters from pandemics to fires to weather. Including money in the budget to cover deductibles should you need to is always important.
Improvements and Preventative Maintenance
As a Homeowners Association Management company, we often find ourselves restoring an HOA’s financial health in day-to-day operations of the property and in funding general repairs and maintenance, and capital improvement projects. Lack of proper budgeting can create a delay in maintenance and repairs on your property/building. Honesty and knowledge are critical to assess and budget for these ongoing improvements properly. COVID-19 took precedence for a lot of boards (in both time and money). It’s time (to take the necessary time) to go back and evaluate all the things that were part of your community vision pre-COVID. We know how much is on your plate, but improvements and upkeep must be funded even in the craziest of times if not doing them would negatively impact your community.
Do Not Skimp on Safety and Sanitization
It’s essential to evaluate and budget for areas in which you may have failed during COVID. Things like extra safety classes for both team members and residents, safety and sanitary measures throughout the building, closing amenities, gyms, and pool areas, face coverings for the entire team, and the development of COVID-specific policies do take time and cost money. You may need to eliminate that new clubhouse for 2021 to ensure that your residents, homeowners, and vendors are safe, informed, and happy.
Were you able to handle the worst of COVID-19 with your current staff? Did you feel like you need additional help? While you may be thinking about cutting expenses, proper staffing is important during any high-stress situation. When one person handles too many important issues, things get missed or set aside. While it may seem like it doesn’t make sense to ramp up staffing, looking at a situation realistically and budgeting accordingly can eliminate future issues that lead to unexpected expenses.
It’s essential to discuss these things now. Do you need to discuss reduced services with your current vendors if things worsen again?
Many vendors have now put disaster plans in place and will negotiate rates or trim hours. Working with the right property management company can take that (responsibility) entirely off your plate and consolidate your expenses. Often they can lead you to find new opportunities to reduce operating expenses, or at the very least, to have a structured plan in place in the event of another worst-case scenario. They will more than likely take over the human resources’ role, so you don’t have to worry about recruiting, performance reviews, compliance, and all other aspects of personnel management that can run up time and money.
During budgeting time, even in the best years, it’s important to assess who is doing what and for what. It’s not unusual to find nonessential or redundant services. Even addressing things like printing can be an unexpected expense cut. During the height of COVID, many communities found that owners did not want to physically handle printed documents, calendars, or newsletters. What may have started as helping to limit the spread of germs has become a bonus saving. If you haven’t already made the switch, look at all your printed communications and do an internal analysis.
Here are some final points to consider as part of your 2021 budgeting process and discussions.
- You still need to collect assessments. While you may not want to raise them in 2021, communicating with your residents is critical and the increase may be unavoidable. They know and understand that assessments allow you to deal with situations appropriately and give them the lifestyle they still desire.
- Don’t overlook your community vision. Stability and vision are crucial in communities today. If you cut in areas that provide vision, owners can become concerned. Communicate changes appropriately and positively.
- Continue to plan for and complete preventative maintenance items. Nothing is more detrimental to the long-term health and success of a property than deferred maintenance.
- Remember that capital improvements sustain your property values. If you need to do them, do them. Be prepared with a plan in case of another shut-down as some improvements could be considered non-mandatory projects and delayed.
- Learn from 2020. Communities are faring well; this has taught us to adjust and prepare for future emergencies.
While COVID-19 did complicate things, it doesn’t change the process of budgeting. You need to take a step back and be willing to think about your budget (being able) to handle and withstand another worst-case scenario. We believe that the right budget will always protect, maintain, and enhance your association, buildings, and lives.
If you are interested in learning more about our budgeting process and other ways to help you be more fiscally responsible, contact us today at 214.522.1943 or firstname.lastname@example.org