Preparing annual budgets for Illinois condo associations requires short- and long-term planning. One area of long-term planning condo board members must account for when establishing their budget is the reserves.
Determining Adequate Reserve Funding
The hallmark of strong financial health is having enough liquid assets on hand to fund ongoing operating expenses while also being able to cover unexpected emergencies if and when they arise. This is why any HOA budget should allocate funds into two main financial accounts – an operating fund and a reserve fund.
While operating expenses tend to remain relatively predictable, it can be more challenging to determine how much in reserves an HOA should maintain.
Conducting a Reserve Study
A best practice many associations follow is to conduct a reserve study annually. The purpose of a reserve study is to forecast the estimated costs an HOA will encounter. The study seeks to predict when certain areas of the property will be due for repair or replacement based on things like the age and condition of the building. It also seeks to quantify the projected costs for the repair or replacement of such property. Adequate reserve funding is vital because it can prevent the board from having to levy a special assessment if a significant repair were to arise. As part of sound financial management, condo board members should allocate sufficient funds to their reserves. To learn more about budget requirements and relieve some stress related to budget planning, consider working with a condo association management company. For help here in the greater Chicago area, get in touch with our team at First Community Management.