Understanding Operating Costs What Every Board Should Know

 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.  

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