Budgeting 101 A Primer on Money Management

Preparing the annual budget for a condo or HOA isn't quite like figuring out a budget for a couple, or even a large family. The board of a multifamily building or association has to consider all the angles—past, current, and future—when formulating a financial roadmap for their community. Fortunately, while every community may be unique, there are a few budgeting basics that apply to every condo, HOA, or co-op, and knowing them will help boards and managers keep a better handle on their building or association's money matters. 

Know Your Terms

Budgeting for condos, HOAs and co-ops actually involves not one, but two budgets: the operating budget, and the capital budget. Recurring, more or less predictable expenses such as taxes, utilities, staff salaries, insurance and maintenance are the line items most frequently found in the operating budget. Major projects, and long term plans, and emergency funds are budgeted for in the capital budget, and those items will vary, depending on the individual community’s needs, wants, and means. 

While expenses are divided into operating or capital expenses, income is generally obtained only from HOA dues or fees, and any fines or penalties incurred and repaid by residents. When any member of the board is unclear or confused on which budget should be assigned which cost, it can be difficult for the board to function properly and to uphold the fiduciary duties for the community. That's why it's important for every board member to have at least a working familiarity with the way their community's budgets function and interact.

The Budgeting Process

Reviewing the existing budget and formulating a budget for the upcoming year is an annual duty for the HOA board. Property managers play a central role in the budget, and the process starts with them. “The manager is the one that usually prepares the draft budget. He reviews it with the treasurer, and the finance committee, and the board. The managers usually revise it and make any changes, and they'll mail a summary of the proposed budget to the owners,” says Steven Silberman, a CPA with the nationwide accounting firm of Marcum, LLP, based in Deerfield, Illinois.

After any changes and adjustments are made, the board will likely hold a budget workshop meeting for additional fine-tuning, and then formally approve the budget in a final board meeting. The pros advise boards to actively solicit feedback from owners in the community to make sure they understand residents' needs, expectations, and concerns, and take those into consideration as they're drafting and ratifying the budget. 

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