An annual operating budget is the foundation of your community’s financial management. It enables you to estimate your expenses and revenues and helps you monitor your association’s spending. By identifying and planning for your community’s needs ahead of time, your association can better defend itself against unexpected expenses and position itself for success.
When creating a budget, you must factor in all operating costs:
- Vender and contractor services
- Professional services
- Office expenses
As a Board member, one of your top responsibilities is to maintain and improve your community’s physical property. It can be tricky to budget for new amenities or shared, common-area assets that will need to be upgraded down the line. By putting effective reserve funding strategies in place, your board can properly plan for these expenses.
A reserve fund is a community savings account that serves as a cushion, protecting your association’s finances from the burden of necessary future expenditures. A reserve account grows over time through regular funding that comes from a percentage of your association’s dues.
Your reserve’s annual funding contribution is determined by a reserve study, which is an analysis of the current condition of your community’s physical assets and what it will cost in the future to replace them.
It’s better to increase annual assessments annually and minimally to match the evolving needs of your community and keep in step with inflation. Look forward to projected increases/decreases in revenue and expenses. Speak with your contractors and utility providers about any anticipated changes in rates, and factor in how the economy is performing.
The best way to stay on top of your finances and budget well is planning:
- Identify your association’s objectives
- Create a budgeting schedule
- Examine previous budgets
- Review financial statements
- Investigate legal requirements
- Conduct a community survey
A great way to foster a better understanding of financial matters within your community and secure budget buy-in from your residents is by forming a finance committee that is comprised of association members who are not active board members.