Budgeting Basics: Building a Strong Financial Plan
Introduction
Budgets are the financial backbone of every co-op, condo, and HOA. When boards fail to prepare or rely on unrealistic assumptions, communities face unnecessary financial stress. At Jonasvar, we believe a strong financial plan is more than balancing numbers. It is about ensuring solvency today and laying the groundwork for a thriving community tomorrow.
The Biggest Mistakes Boards Make
Many boards run into trouble because they do not prepare their annual budget on time, rely on outdated or unrealistic data, or fail to properly forecast the community’s needs. Inflation, rising utility costs, and higher insurance premiums are often underestimated, leaving boards exposed. These missteps may seem small in the moment, but they create ripple effects that undermine the financial health of the property. Neglecting to plan properly inevitably leads to higher costs, unexpected assessments, or even solvency issues.
Why a Strong Plan Matters
A well-prepared budget ensures that a community can meet its obligations, invest in improvements, and anticipate challenges before they become crises. Strong financial planning lays the foundation for stability and growth, protecting both residents and property values.
Jonasvar’s Approach to Budgeting
Budgeting is not a one-time exercise. At Jonasvar, we treat budgeting as a year-round process that begins months before the fiscal year ends. We encourage boards to review financials regularly and evaluate several drafts before adopting the final plan. We prepare contingency options, highlight risks, and recommend strategies based on historical data, market trends, and comparable communities. This allows boards to prepare for both expected expenses and potential surprises.
Multi-Year Forecasting
In addition to annual budgets, we encourage boards to adopt a five-year financial plan that is revisited annually. Jonasvar links this planning to reserve studies and legal requirements so boards can anticipate major capital needs, comply with new regulations, and spread out costs in a manageable way.
Reserves vs. Operating Budgets
Boards often confuse reserves with operating budgets, but the distinction is critical. Operating budgets cover the community’s day-to-day needs, while reserves are set aside for long-term or emergency issues that cannot be absorbed by routine operations. Jonasvar ensures reserves are reviewed annually and tested against reserve study recommendations so they remain adequately funded. Underfunded reserves almost always lead to problems, forcing communities into expensive loans or special assessments to cover capital improvements.
The Importance of Communication
A strong financial plan is only as good as the community’s understanding of it. Nobody likes surprises, which is why we emphasize frequent and clear communication. At Jonasvar, we provide detailed reports, visual breakdowns, and presentations explaining the driving factors behind the budget and what it means for shareholders. Transparency builds trust and prevents resistance when changes are needed.
Real-World Example
Several years ago, we advised a board to allocate 1.5% of its annual budget toward compliance with a local law that would take effect five years later. By planning early and supplementing reserves with additional income sources like parking, storage, gym fees, laundry, and subletting, the community met the law’s requirements without facing a sudden assessment or costly debt.
Where Other Managers Fall Short
Many management companies shy away from tough financial discussions because they know boards and residents may not want to hear difficult truths. This avoidance only delays the inevitable and often leads to financial hardship. Jonasvar takes the opposite approach. We believe in clear, open communication, even when the news is difficult. By addressing financial realities early, we help communities avoid surprises and make better decisions.
The Jonasvar Difference
With our open-door policy, all actions and expenditures are available for residents to review. We encourage participation, address concerns directly, and empower boards and residents to make decisions with confidence. By fostering transparency and engagement, Jonasvar builds stronger communities and more resilient financial plans.
The Bottom Line
Budgeting is about more than balancing books. It is about anticipating needs, funding reserves, and creating transparency that protects communities from financial stress.
Let Us Help
At Jonasvar Inc., we manage your property like it’s our own by preparing realistic budgets, supporting long-term planning, and giving boards the tools to communicate with clarity and confidence.
Wondering if your community’s budget is strong enough?