The Importance of Creating an Operating Budget
Every condominium association should have an operating budget. Most condominium association bylaws require a budget to be prepared by the board and presented to the owners at the annual meeting for approval. A budget is an essential tool used to determine what the condo fees per unit are going to be.
The budget will summarize the expected revenue and expenses of the condominium association for the upcoming fiscal year. Be sure to give yourself plenty of time to prepare your operating budget. The process of preparing a budget usually starts in late Summer or early Fall.
The first step is to gather historical financial data. You will want to run an income statement for the last 12 months and compare this to the current operating budget. This will allow you to see which expense line items in the budget might need to be increased or decreased.
You will want to consult with your insurance agent. Also, check with other vendors like landscapers to see what their expected future costs will be. It is also good to have the operating budget set aside some funds each year for future capital expenses.
Fannie Mae has a lending requirement that states 10% of the annual operating budget must be allocated to reserves. This guideline can be waived with a Reserve Study. This determines the amount needed to be budgeted for reserves.
The board should try to have the budget completed and ready to be voted on by the owners at the annual meeting. Usually, this takes place in November or December. That way, there is time to make any needed condo fee increases before the beginning of the year.
A well-prepared operating budget is a great tool that can be used as a guide for the board all year long. The association’s actual operating results should be compared to the budget every month to determine where they need to focus their attention. The association’s property manager or accountant can help the board in preparing a budget if needed.
