Whether you’re managing or governing a suburban condo development or an urban high-rise, operating costs are a constant concern. No matter how hard you plan, there are always unexpected expenses, and you have to plan for them. This is true even if your association is a high-income one. In addition, the sheer number of operating expenses, from watering the lawn to maintaining your HVAC systems to buying office supplies, can be daunting. Thankfully, there are ways to catalog, organize and keep track of operating expenses in today’s world.
Which is Which?
First of all, what is the difference between capital and operating expenses? Capital budget items usually apply to physical improvements that require a lot of expense, such as building a new entrance, constructing a new roof garden or replacing the building’s boiler. Some people might say that anything that isn’t a capital expense is part of the operating budget, but it’s more involved than that.
“The operating budget for condominium associations,” says Brian F. Lozell, CPM, director of condominium management for Seneca Real Estate Advisors in Chicago, “would include all expenses associated with the daily operations of the buildings.” As examples, he mentions administrative expenses (office supplies, telephone bill, property insurance, management fees), payroll (office, maintenance and door staff, payroll taxes, health/life insurance), utility bills (electric, gas, water), repairs and “contract expenses” (window-washing, elevator, landscaping, exterminating and trash removal).
Similarly, Marshall Dickler, a principal with the Arlington Heights law firm of Dickler, Kahn, Slowikowski & Zavell, Ltd., says that operating expenses include “every expense incurred in operating the portions of the association other than reserves and unit owner expenses.” Among the items he mentions are management fees and costs, accounting fees and costs, tax preparation, accounting and bookkeeping costs, maintenance and repair elements “for common elements and for those portions of the units for which the association is responsible,” gas and electricity expenses, grass-cutting, snow removal, elevator repair, landscaping, cable and Internet expenses and more.
Given the broad scope of purchases and payables involved, how must buildings or HOAs keep track of their operating expenses?