Don’t Wait, Start Working on Your Operating Budget Now
The key to creating a successful operating budget for your
association with little stress is starting the process early.
Starting to work on your budget early allows you time to focus
on each specific area of the budget to fully understand what
the expense is, why it is in the budget, and how it positively
affects the association.
Your budget process should start in August with a general
property inspection. Take note of the overall condition of the
association elements of responsibility to determine
maintenance needs. Also take this opportunity to consider
projects that will enhance the value of the association. Ask
yourself, do the buildings need to be painted, is the asphalt in
need of sealing, should a weather shelter be built over the
mailboxes, does the clubhouse need new carpet, etc.
Compile the list of projects, get cost estimates for the
projects, then prioritize the list from most important / probable
to least important / probable. You will use this list to select
your projects once you complete your preliminary budget.
August should also be a time to review your current lawn care
operating plan to make any changes you feel will benefit the
association. Lawn care service is perhaps the largest
expense of a budget, so take your time to fully review and
modify the lawn care operating plan. Sometimes this means
increasing the level of service (and cost) of your lawn service,
however, this can also be a time to reduce or eliminate
services that don’t add value to the association, such as
reducing hard blade edging from 8 times a year to 6. Once
your lawn care operating plan is finalized, get bids from
multiple companies so you have them ready by the time your
preliminary budget is completed.
Once the project list and lawn care review are completed you
should be ready to start working on your preliminary budget,
generally in September. The preliminary budget is comprised
of all the routine expenses necessary for your association to
operate. These items include insurance, administrative,
management fees, legal, accounting, utilities, reserves, etc.
Review all your routine expenses for the current year, along
with any notes you made throughout the year regarding price
changes or service modifications, to determine what will
remain as an expense in 2018 and what the cost of the item
Once you have your preliminary budget completed, add in the
cost of your new lawn care contract, then subtract the total
expenses from the income to determine how much income
remains. This surplus is what you have available to spend on
projects. Now is the time to review your list of potential
projects to determine which ones you will complete. Enter the
selected projects into your budget to arrive at your completed
Once your budget is approved by the board, don’t forget to
send it to the owners along with a pie chart showing them
exactly what their dues pay for.
Accounting: Your association should be a non-profit entity, so
it is required to file a tax form with the Federal Government.
Make sure you allocate funds for the preparation of this form.
Reserve Funding: It is vital that you have an accurate reserve
study and that you allocate the appropriate amount of funds
as stated in the study. This is not just saving 10% of your
income per year. You need to save what is necessary, not
just the minimum, as stated in the ORC 5311, unless a
majority of the owners approve not to fund it each year.
Operating Reserve: The operating reserve (generally two
months of dues as required by the declaration) is what you
need to have in your operating account at the beginning of
the year. If you end your current year with more than this
amount you should transfer the surplus to the reserve
Bad Debt: Be realistic and recognize that it is not uncommon
for a few accounts to be delinquent. Make sure to account for
any delinquent accounts so you don’t go over budget.