In your own household, you have money coming in and money going out. You have things you want to save up for—say, a new cool high-def, flat screen television or the latest iPad. Yet you owe your car company and your creditors. To keep it all straight and get a handle on your spending and what you need to save for, financial experts recommend creating a budget.
Running an association is no different. There is money coming in from resident fees and money going out to pay such items as the landscaper or the maintenance crew. But what about if the roof springs a leak, the insurance rates go up, or the cost of electricity skyrockets? How does an association keep track of it all? The same way an everyday Joe would—they draft and stick to a budget.
An Integral Part
There is one major difference with our own personal budgeting and an association’s budgeting. Unlike our individual budgeting process, there are two kinds of budgets for an association—an operating budget and a capital budget. Capital budgets apply to long-term, big-ticket items like new roofs or an HVAC overhaul.
By contrast, the operating budget covers recurring monthly expenses such as payroll and salaries, taxes, utilities, insurance and maintenance items (see the sidebar for a more complete list). In creating and managing an operating budget, co-op and condo boards must try to predict expenses, balance cash inflow and outflow, and be aggressive in collecting arrears and late fees from delinquent residents.
Budgets are an integral part of an association’s financial plan. They help to set goals for achieving an income and monitor how much is being spent. In a condo, co-op or HOA, the final budgets need to be presented in front of the board of directors for their stamp of approval. The board of directors must vote on and approve the budget, depending on the association’s bylaws.