graph puzzleAssess your community association’s financial health, determine variances, and prepare for next year.

Regardless of when your HOA or community association ends its fiscal year, you’ll find it much easier to operate in the second half of the year if you have a good understanding of where you’ll end up. You can accomplish this by incorporating year-end financial projections into your monthly budget updates.

I’m the president of my HOA, and we started our year-end financial projection process in early August for our calendar year budget. This year-end review process allows us to look forward, whereas our monthly financial review primarily looks back. We can make adjustments now, before it’s too late in the year. We’re actually better off than we thought, and we may implement a couple of extra projects.

5-step year-end budget projection process

Here’s the easiest way I’ve found to create a year-end budget projection. Simply build an Excel spreadsheet with your revenue, expense, and reserve line items, and then add the following 5 columns to the right:

  1. Year-to-date amount. Hopefully, you or your management company has been updating your financial statements on a monthly basis, so you know what you’ve collected and spent so far this year. If not, take the time now to catch up.
  2. Annual budget. This is what you originally expected to raise or spend.
  3. Year-end projection. Based on where you are today, project where you’ll be at the end of your fiscal year. Be realistic. Don’t focus on what you budgeted last year.
  4. Variance. Subtract #3 from #2 to determine whether you’ll be over (negative number) or under (positive number) budget.
  5. Notes. This is probably the most important field, because you’re documenting why there is a variance. This will make next year’s budgeting process much easier.

Once you’ve created your year-end projection document, update it every month along with your financial statements.

Why didn’t we ever fill the pool in 2013?

Here’s an example of why documenting variances can be important. Because of all the rain this summer, we haven’t had to add much water to our community pool, so that expense line is well under budget. Even though it seems like this rain will never end, we can’t assume that it will be as wet next year. Noting the reason for the variance will be very helpful when we start the budgeting process this year, but also provide a permanent reference for future budgets created by future Boards.

Don’t wait until year-end to assess your financial health

The annual budgeting process is hard enough as-is. Reviewing your HOA or community association’s budget and year-end projections, starting in your fiscal third quarter, will help you make smarter decisions as you close out this year and budget for next. You may need to cut back, or you might be able to fund an additional project or social event. Also, think about how much easier it will be to create next year’s budget when you’ve got a thorough understanding of what has happened this year.

Make sure you consider the upcoming transfers to your reserve account, as well as your cash flow needs through the final part of the year. If you have any questions, or would like an expert to review your current budget and projections, please give us a call.

Neal Bach, CPA