When money is tight…. when is it not, with homeowners associations, it is perhaps easy to omit or forget items that should be included. Some years ago, 2005 I think, we suggested to mall our associations that they set aside a certain sum for bad debts. I had never seen a budget up until then that included such a provision. Needless to say everyone resisted not because it was a bad idea but because it meant in many minds raising the dues or trimming some other expense. Sometimes associations are as bad as government when it comes to budgeting except for the one prominent fact; no-one wants increased dues. Bad debts are now included in every budget we prepare. Another item that can be a handy one after its initial introduction is a contingency. Admittedly adding a contingency for the first time has the same effect as my bad debts, it suggests a cut elsewhere or a raising of dues. But oftentimes there is an unexpected expense never planned. Having a contingency item of say 5% of the annual expenses allows for a cost overrun or an unanticipated cost. Not using it allows the reserves to build a shade faster. Nowadays utility costs are soaring, compared to other income and expense statement items, often because we cannot negotiate them when there is a sole provider. Making a best estimate less whatever planned savings can be introduced is not particularly difficult. Most utilities advertise their forthcoming increases. Talking with contract vendors in advance of next years budget should be the rule not the exception. I think some people think that not talking to the vendors may cause them to forget an increase. I believe our vendors are smarter than that and that if we talk to them we may be able to come up with a mutually satisfying compromise on future costs. Finally in today’s marketplace a provision for collection costs that are not recovered may be a wise precaution also.
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