It's the End of the Year as We Know it By Chuck Krumrie, Broker/Owner, Urbanwood, Inc.
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he end of the year draws nigh…eggnog and blazing hearth fires. If your association is like most, your fiscal year runs January through December. So while the band is playing Auld Lang Syne, the books are closed on the year passing. If your association is governed under the Minnesota Common Interest Ownership Act (MCIOA), then it must deliver year-end financial statements to all homeowners within 180 days of the end of the fiscal year. Your Board of Directors likely has been reviewing such statements monthly. What are the directors looking at? How do the financials inform their course(s) of action? Twelve months of financial statements is part of the big picture. The board will use the data in kind of a meta-budgeting process. The budget for the year fast upon you has already been approved. But a budget must be approved every year and deliberate boards will look at years of year-end financials vis-à-vis long term income and expense strategizing. Year-end statements allow you to look forward by looking back. How do your actual figures compare to your budget? Which line items are red and which are black? Are any seriously out of whack? Twelve months of financials can be seen as a report card on the board’s
budgeting prowess, as well as a statement of the sufficiency of your dues structure. Your association is a non-profit corporation and as such, budgeted income must equal budgeted expenses. My firm works primarily with smaller associations, so it’s unfortunately common to see missed budgetary targets regarding the Contribution To Reserves (CTR). To my mind, the CTR is one of the most important line items, as it represents the association socking away money for its future. Temptation always lurks to neglect this line item in the face of greater-than-anticipated expenses or a cash crunch. A 12-month snapshot of your CTR offers a revealing picture of the strength of your dues intake. The expense of insurance is another area where actual cost can stray from budget predictions. Premium costs are typically less predictable than most any other expense item. Of late, the market has hardened, meaning that there are fewer players willing to write coverage. Those which are can command higher premiums and steeper increases. I’ve seen the tail wagging the dog when budgeting for insurance. Many expenses are pretty much the same month after month, and magical thinking just cannot apply. (You cannot cut your water consumption by a third by mandating five-minute Navy showers (continued on page 29)
November | December 2016
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