4 STEPS TO AVOID TOMORROW PROBLEMS...
By
Rafael Aquino
Published July 15, 2020
Last week I provided tips on the importance of staying on top of
your receivables. This week and I wanted to write about the steps
you should be taking if you start to see your percentage of
delinquencies increase. As I mentioned last week, I don't believe we
see the real picture of this pandemics financial impact on
associations yet; however, I think we'll start to see the actual
image in twelve to eighteen months from now, so you should start
planning now.
First, you want to know what your association's receivables baseline
is. Treasures and managers should know what an average delinquency
rate is for your community during good times, assuming you had a
firm collection policy. The Treasurer and manager should be
comparing that baseline number to the current month so you can gauge
if things are looking good or turning for the worst.
Second, know where you are with your expenses. Dive deep into how
much has been spent this year and what will be allocated through the
end of the year. Will you have excess funds this year? Will you
fall short?
Third, as associations that are on calendar years start to prepare
for 2021 budgets, it's essential to keep two-line items in mind.
First, do you have a bad debt line item? If you don't, you should
probably consider adding one for your association. If you do, is
it sufficient to cover for potential delinquencies in 2021? The
percentage that should be added is based on each association and its
demographics; however, if you see your accounts receivables getting
worse, you may need to project for a higher percentage. Second, many
associations have had additional expenses because of this pandemic.
Those expenses will probably continue throughout 2021, so a line
item should be considered.
Finally, boards with tight cash flows may need to consider amending
their budget now to avoid more prominent problems in the future. If
you are considering an amendment now, it may also be the time to
consider a line of credit. Having to borrow will cost you more in
the long haul; however, it allows you to take only what you need.
Remember, once the receivable gets above eight to ten percent
delinquent, there won't be many options of banks willing to lend you
money.
While the above might not apply to those associations which have
budgeted properly and reserved for rainy days, however for most, it
probably will. It's not what you do during the good times that
defines good leaders (board members) but what you do during trying
times. Michelle Templet said it best, "Doing nothing is even worse
than doing the wrong thing."
