The day-to-day costs of running a multifamily residential building are significant. There’s the fuel oil, electric, cleaning supplies, equipment maintenance and service calls for repair and upkeep. Then there are the insurance costs, landscaping, trash removal, snow removal, advertising, property taxes, and maintenance fees.
In today’s economy, the cost of many of these expenses for HOAs have gone nowhere but up (and up and up…) And after one of the harshest winters in a long time when fuel costs escalated, most businesses are just raising their prices just to keep up with their own rising expenses. Cost control should always be on the forefront of a manager’s mind, and there may come a time when like it or not, the budget simply has to be tightened. The bottom line to managing a building’s bottom line is to do what anybody does when facing more month at the end of their money—evaluate spending, cut costs and look for better deals.
It's impossible to rein in spending if you don't have a working, comprehensible budget. “Preparation of an accurate budget is critical,” says Michael Cervelli, founder and CEO of Cervelli Management Corporation in North Bergen. “Sometimes budgets are created that do not accurately reflect expenses such as supplies and maintenance in order to keep the residents happy for the short term. The end result is special assessments —or worse, operating at a deficit.”
Most management and financial pros agree that evaluating current spending is the first step in determining whether or not the association's spending is out of control and if changes are needed to rein things in. Recognizing areas in need of improvement and formulating a plan going forward can be tricky, however—trimming too much can sometimes create more headaches than the money saved is worth.
“I think some of that comes with experience,” says Gary Wilkin of Wilkin Management Group in Mahwah. “We try to look at the size of the community or building, compare that to what would be normal in that category, and sometimes things pop out at you based on your experience with that type of building. You can analyze a building's operation and [see potential] inefficiencies. For instance, you can look at building supplies and material costs for operating the site and say, 'Wow! That's a pretty hefty line item. Do we need to spend that?'”