How ready should we be for budget season?

By: Tarra Eshgh, CMCA®, AMS®, PCAM® - ST&R Portfolio Management

It’s almost that time of the year – “the budget season!” Some may find the budget season to be the scariest and most stressful part of the year, and some may find it exciting where we get to plug in numbers and project an increase for next year’s annual operating expenses.
Budget preparation is one of the best parts about community association management – without adequate funding for each expense, a community’s day-to-day will be challenging to manage because a good budget leads to consistent growth of community’s finances and health.
Please see below for the basic steps of budget preparation:

• Find out any projected increases from all vendors that provide services for a community – if they can’t give us an increase percentage, then we will have to project it based on an inflation – a start between 3% - 5%. Except for insurance, we will need to contact an agent for their projection; it’s usually between 35%-40% today’s world.

• Gather all 12 months “actual” for each expense (current year, year-to date is fine) and prior year’s 12 months expenses. These two reports will help us understand the pattern of our community’s spending pattern.

 

• DRAFT a budget in an excel format by creating columns for:

1. Current Year’s budgeted amount for each expense
2. Year – to -date amount for each expense
3. Annualized column where we project the spending amount of the current year – January through December
4. Next Year Budget – amounts enter for each expense. Preferably, all expenses should be in formula. It will help explain how we got each amount and why. One of our ways in communicating transparently with the community regarding an increase for their HOA Dues.
5. Visual is a plus – includes pie graph/chart to present each expense category. Some homeowners prefer visual than words/numbers.

There is likely more to the budget preparation process – it depends on the management companies/Board’s preferences. This is a just brief summary of what entails in the budget preparation process.
If you are looking for a basic starter budget, please contact [email protected] and we will gladly help you to get started.
Happy Number Hunting!