Archive for January 20th, 2010

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INACTION

January 20, 2010

INACTION???

By Lorraine Cyr 

There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction. – John F. Kennedy

How

Does your Management Company provide your Association with a yearly budget? And the bigger question do you review it and understand it?  At Lorraine Cyr Management Group we develop a 5 year budget using the history of the last 4 years and our experience of what might be expected in the year to come. Every budget is just an estimated guess with some items like repairs, plumbing, and utilities more unpredictable than others.  Your Property Management Company can take some of the guess work out of these line items with just a little planning.

The utility companies offer budget plans which have a fixed monthly payment plan for a year.  This allows you to pay more during the summer when your energy consumption is less, the utility company saves the over payment, then during the winter you pay less than actual cost.  If at the end of the year you owe the utility company you can have 3 months to pay, but you need to request this time.  It is important to watch your bills and if you find that your utility bill is $4,000 and your payment is only $1000 to adjust it mid plan to reduce your year end payment.  If your Management Company is not paying attention to this your Association could be caught with a payment of thousands of dollars.

 To some extent you can work a plan with your contractors with a fixed monthly payment which gives you a fixed number of visits.  With a well planned preventative maintenance program the number of unplanned service calls can be reduced allowing you to estimate the cost pretty accurately.

Most of your other expenses are fixed with regular monthly bills and increases that can be planned. At Lorraine Cyr Management Group we will use 3 years of history to look for trends and then predict what the cost will be for the next 5 years.  Why five years?  If in year one there is a need for a 3% increase, but in year 2 you need a 6% increase we would recommend a 5% increase in year one and a 5% increase in year 2.  It is easier for members if increases are kept low and done a regular basis.  It is harder for families to adjust to a 6% increase when the year before they only had a 3%.  In years where we have an excess of income over expenses we recommend this be moved into an investment account and a small increase be implemented even if not needed.  In this case the increase might only be a 2% increase.  Seldom does an Association have enough money in savings.

When your Association has enough money in savings to do major repairs without a loan the timing of the repair can be planned to achieve the maximum benefit in cost.  Also with money in the bank the Association can pay all bills in time to take advantage of discounts.  Management of cash flow can save money and every little bit helps.

The quote by John F. Kennedy – There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.  Is a good quote for any Association that will not take action and vote for yearly increase.  If an Association continues to delay increases by delaying maintenance the long term effects can cause a building to be lost.  If the Association can’t afford the smaller 2 and 3% increases it will not be able to cover the cost of a new roof when it is needed and has not been saved for.  Savings have to be a planned part of any budget.  LCM recommends that our Associations maintain 3 months of expenses in cash to cover normal operations.  LCM schedules reserve studies every 2 or 3 years to ensure that our Associations savings goals will meet the property needs four to five years out.

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