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BUDGETING PROCEDURES FOR COMMUNITY ASSOCIATIONS
October 1, 1998
A budget is an operational document that puts forth
policies and goals of the Association in fiscal form. A
budget is an estimate, which is usually initiated two to
three months before the fiscal year usually begins. An
operating budget is a management tool developed and used by
the Board of Directors of an Association to help achieve
the goals of the Association.
A budget can be developed by a committee and/or by a Board
of Directors, depending on the size and complexity of the
operations. For this article, we will assume that the
Committee will develop the budget to present to the Board
of Directors. In all cases, the Treasurer and key
operations personnel should be involved, as they have an
intimate knowledge of the income and expenses of the
previous year and would also be in the best position to
make reasonable judgments for the coming year.
A budget will include a reasonable expectation of the
amount of expenses it shall incur during the coming fiscal
year and the amount of income required to offset the
expense. Once in place, the Board of Directors monitors the
budget by way of regular monthly or quarterly financial
statements. These financial statements will show a balance
sheet, income and expense, any changes in reserves, a
statement of cash flow and a general ledger detail. In
this manner, any major variances in either income or
expense can be examined and explained with action being
taken.
As a group, the Committee needs to agree on what specific
goals they would like to achieve during the next year, what
expense categories are required by the by-laws and or state
statutes. After agreeing to certain goals, the use of last
year’s budget and historical file, a line by line
comparison analysis, last year's variance reports can all
be
used to help compile the budget.
The previous year's budget and historical files will
provide
a recap of previous activity and past year’s actual
expenses, projected for 12 months activity will also
provide a guide to the Committee.
The budget format will consist of income, expense and
reserve requirements. Income categories will include
maintenance assessments, interest income, late fee income,
and any other income, which can be relied upon throughout
the year. Expense categories will include utilities,
payroll/employee benefits, if any, operating, repairs and
maintenance, administrative and general expenses. Reserves
for Replacements, as mandated or as required by the
documents
and current statutes, would also be included.
The Committee will take each year-to-date line item,
project that expense over a twelve-month period of time and
then base this work on past performance and historical
calculations. With this information, they would provide
line item figures with any anticipated changes and
variances. We like for Committees to provide a written
explanation of each line item. This will not only help the
Committee to explain the budget to the Board of Directors,
but will help provide a base of information for future
Committees and also may be used as a guide when mailing out
to the members.
The draft package will contain an overview of the proposed
budget outlining pertinent facts and items of special
interest. The Budget Summary will be the actual budget,
with all major sub-headings, showing percentage of
increase/decrease over last year’s budget. Additional
reports may be presented to the Board of Directors such as
"seasonalization" spreads and a monthly "cash flow"
analysis. Both reports will help the Board of Directors to
operate throughout the year and be used as a planning tool.
Some tips to help you save time and have some continuity in
the budget process:
Throughout the year have all abnormal expenditures
reflected in the minutes of meetings, then use this for a
guide.
Keep a historical file on the budget. Any committee, board
or other meetings which could impact the budget, keep in
the file.
Keep account codes to a minimum and keep the budget simple.
Copyright 2007© Associated Property Management of the Palm Beaches, Inc.
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