Knee Deep in Budget Season?

Budget season is as dreaded by some Board Members as a trip to the dentist – and understandably so! Creating & managing a budget for a community association is a complicated process. From gathering historical and current data on expenses to trying to estimate how much money will be needed for imminent property enhancement projects, the amount of information you need to obtain to put together your community’s budget can seem overwhelming.

But don’t panic just yet! By following a few of the pointers listed below, you can put together a comprehensive budget that adequately meets the needs of your community.

  • Why are we doing this again?

Before you begin putting together the budget for your community, remind yourself of why an accurate budget is necessary. Without a relatively accurate budget, your Board of Directors won’t have a gauge for how to set assessments for the community. A delicate balance needs to be struck between caring for necessary expenses, repairs & emergencies, and raising assessments to the point where they genuinely burden the residents of your community. So while pulling a budget out of the air might be tempting, it simply isn’t in the best interest of your community.

  • Focus on the big picture!

Budgets revolve around three things: expenses, reserves, and income. These are the building blocks of your budget so focus on establishing these three main components and once those are solidly in place, work on the smaller details that need to be considered.

  • Not all operating budgets are created equal!

There are three main methods used to calculate budgets for community associations:

  • Historic Trend: Using this method requires that you use the Association’s prior year budget as a baseline and add a percentage of increase to account for inflation. Although this method is widely used and is arguably the easiest way to determine an Association’s current year budget, it’s certainly not the most accurate.
  • Zero-Based: This method requires that you determine a budget line item by line item, beginning with a $0 amount for each line and justifying each expense that goes into the budget. This method, albeit time consuming, tends to be very accurate and is especially helpful if your Association is new.
  • Hybrid Method: It’s likely that you are or have been using a combination of the two methods previously mentioned. This is a good thing! Being able to use a prior years’ budget to help establish a baseline can cut down on the more tedious aspects of building an Association’s budget, and being able to zero out old line items and replace them with new and more up to date bids for service with help you to create an accurate budget.