By the end of the summer, management companies across the United States embark on a dreaded annual task: the budgeting process. It’s challenging enough to manage budgets for each and every homeowner and condominium association within a portfolio. How would you have time to budget for your own organization on top of this monumental effort? The unfortunate answer? Most don’t.
According to our 2022 State of the Industry Report, only 23% of management companies reported a formal budgeting plan for their organization. This small percentage is mostly comprised of larger management companies with over 50 associations; small-to-medium-sized businesses are far less likely to keep and maintain a budget. But if you’re pursuing business growth in community management, a budget is a non-negotiable need. You’re the boss, after all: it’s time to budget like one.
In this guide, we’ll begin with an outline of how to prepare a budget with ease for your community associations. This section will help you keep budgets well organized for your clients, improving speed and efficiency for you and satisfaction for your boards. Then, we’ll dive into your own budget. We’ll discuss some basic tips for overall budget management, how to plan for your growth in the upcoming year, and common mistakes made in budgeting within community association management.
By the end of the summer season, community associations should be completing a thorough budget for their neighborhood. This will ensure that associations are properly organized for next year’s maintenance needs, contracting services, and reserve fund contributions. Most importantly, community budget preparation is essential to improve homeowner engagement and empathy. Here’s a step-by-step guide to prepare a budget for your community associations without hassle or headache.
The first step is to get the board organized with an overall business plan. Lay out your goals for the community and break down those goals month by month. For instance, if your goal is to increase quorum, list out the monthly objectives you’ll complete to increase overall engagement that would lead to a higher quorum for your annual election. By laying out the plan month-to-month, you’ll also gain insight into your monthly budget needs.
From landscaping, to pool management, to waste management and more, send a request-for-proposal to the vendors of your choosing for all of your recurring services. This will ensure that you can use sound numbers in your budget, rather than creating a random estimate. If you’re not sure of which vendors to seek, you can utilize a rating program like the one available in CINC’s platform.
Budget preparation for individual associations within your portfolio is a must-have. But oftentimes, management companies stop the budgeting process then and there. It’s imperative to continue the budgeting process for your own management company as well, which we will discuss in the next sections.
While budgeting for an association is unique in many ways, budgeting for your own management company is very standard to a budgeting process for any small business. You have your goals laid out for the following year, a review of fixed and variable expenses, analysis of your employees’ salaries, and a thorough review of the technology used to help your business prosper. To first get started in the budgeting process, we need to determine what revenue we aim to hit for the upcoming year.
One of the first steps in budgeting is to plan out your sales goals. This includes fees from your current clients as well as a planned increase in the number of clients you accumulate in the upcoming year.
As it’s always important to involve your employees – both to understand their points of view and to improve employee engagement – now would be a great time to gather your leaders together to discuss your goals for the new year. Questions you can brainstorm include:
After gaining this insight from your key team members, it’s time to put a plan into action. Review your list of prospective clients within your area, determine your close rate, and develop an acquisition goal accordingly. Based on that goal, consider what expenses will be needed. Will you have to hire more management staff, or will you need technology that can offload manual tasks so that you can be more focused on sales? What level of marketing expenses do you think will be needed to hit this goal, and how much of an increase/decrease will this be from prior year?
Now that you have a planned revenue number, it’s time to crunch some expenses.
Based on the feedback received from our State of the Industry survey, we know that many management companies have not completed a formal budget for their own business in the past. If you fall into this bucket, you may need to know a few important terms to consider when you’re building a budget:
When analyzing your budget needs, there are six easy steps you can take to ensure you are on the right track for your business:
This may be challenging to compile if you haven’t planned a budget in the past, but it is important to do in order to have a full view of your business potential. Review the monthly highs and lows, see what cost increases you incurred, and track where you added and lost clients within your portfolio. Completing a month-to-month review will give you a clearer direction of future, realistic business potential.
In the same way that you completed RFPs for vendors in your individual associations, do the same for your own business. See where you can expect cost increases, and if there are any fixed expenses you can cut. For instance, if you plan to invest in cloud-based software or take better advantage of your software’s integrated accounting features, you may be able to cut down on the number of printers you originally planned for within your office or at your employees’ homes.
Per our State of the Industry report, the majority of management executives intend to increase salaries beyond the standard cost of living, because of retention needs and overall inflation. Plan out the increases you expect to incur in the upcoming year, and if you plan to add any new staff. This is an extremely important step that is often overlooked; if you’re not incorporating a salary increase in your budget for the new year, but you offer your employees a raise anyway, you may be at risk for layoffs in the near future.
Take a look at your tech stack. What software generated an ROI for you in the previous year, and what software felt more like a cash collector than a revenue producer? What software is serving your community in a positive manner, and what feels like an extra expense? Is your accounting and property management software continuously updated by your provider, or is it slowly running out of steam? If you have any out-of-date software that is not servicing your homeowners in a manner that will positively impact your sales goals, it’s time to consider a change.
Schedule the times you’ll be traveling to industry events, holding team outings, and any other variable expenses that you can place a hard date for the schedule. This will ensure you plug in the right expenses at the right time without any surprises.
Now that you’ve built out your goals and analyzed all of your expenses, you can plug in your budget. Complete your budget along with your revenue growth model, and see if you’re tracking for profit.
After the initial run of your expenses, it will be important to revisit the variable expenses you plugged into your budget. What expenses are eating away at your profits, and where can you adjust appropriately? For instance, are you paying for an abundance of paper when you can go paperless with a more efficient accounting process? Or can the postage fees for your check runs be cut through virtual card options for your vendors? A budget is never going to be finished by round one – revisit multiple times, involving team members where necessary, until you are fully comfortable with the budget you have planned out for the new year.
You’ve created what you think is the ultimate mecca of a budget, and you’re ready to hit the ground running in the new year. But have you fallen into a common budgeting trap that causes most small business owners to spend way more than they should? Before you laminate that projected P & L, take a thorough review of where budgets commonly go wrong and make sure none of these apply to you:
In the last section we discussed where budgets go wrong, and a lack of technological investment and innovation is one of the biggest blunders a business could make. As you consider your tech stack and analyze your future needs, pay close attention to what your team tells you about their day-to-day. Are managers spending too much time fixing over-engineered workflows? Are accountants spending too much time reconciling mismatched payments? Are board members spending too much time mailing letters and asking for quorum door-to-door? After you gain a full list of pain points from your employees and clients, consider which technological tools are out there to ease the pain.
Everyone within the community association management industry is aware of tools to support accounting and property management needs, but what else is out there that you should consider for your upcoming budget? Here are a few tools from CINC Systems that you can consider as you wrap up your plans:
As you’ve planned out a stellar budget for your new year, you may realize that you need to spend a considerable amount of time reviewing your software solution to better hit your P & L goals. To make the best decision for your association management company, check out our Ultimate Buyer’s Guide for a full rundown of everything you need to consider when choosing software.