To account for everything your association will need to fund, we recommend organizing your upcoming expenses into six basic categories.
At CMA, our budgeting process is one of the distinctive practices that truly set us apart from other management companies.
2020 are developed in the fall of 2019 for most of our 250+ associations.
Boards must approve the final budget by mid-October. Whether your HOA is a CMA
client or not, it is now time to scrutinize and prepare your 2020 budget. To
account for everything your association will need to fund, we recommend
organizing your upcoming expenses into six basic categories:
Regularly Recurring Expenses
include all expenses that are periodically charged within a year, whether
monthly, quarterly, or bi-annually. CMA takes a more rigorous approach to
planning for these expenses, rather than simply taking last year’s expenses and
dividing by 12 for this year’s budget. This is common in our industry, and it’s
a mistake because it doesn’t yield an accurate income statement for your
monthly financial reports. CMA uses a detailed methodology to account for
seasonal spending and trending, such as increases and decreases in per gallon
water rates for irrigation and kilowatt per hour rates for electricity.
regularly recurring expenses at specific timeframes, such as an audit, tax
preparation, annual meeting, and statement mailings, these expenses should be
specifically allocated for the month in which they occur.
expenses are different than quarterly (recurring) expenses. Seasonal expenses,
such as spring landscaping, summer pool maintenance, or winter holiday
decorating occur at one time frame during the year. Economic factors like
product availability, labor shortages, and inflation can cause some of these
expenses to be improperly forecasted. Strongly consider the economic variables
before making projections with seasonal expenses.
variable, carefully review past records for extra seasonal expenses that may
not be top of mind, such as extra safety patrols when kids are out of school,
or over busy holidays.
Occasional, Irregular Expenses
significant operating budget expenses don’t occur each year, such as a reserve
study update, playground rubber mat replacement, gym equipment maintenance, or
pool refinishing. You may need to invest in technology upgrades to your office
computers or to the LED bulbs in your streetlights. Irrigation backflow testing
is another potentially significant occasional expense that is mandated by the
city to be performed periodically – and there are other similar mandates to
consider. Have you accounted for the items that will need to be replaced or
repaired as operating budget expenses for the coming year?
extreme Texas weather, have you set aside more in contingency line item funds
for storm damage and recovery? How about potential lawsuits? Think about all of
the prior emergencies that have occurred in the past, and about the likelihood
of specific types of emergencies that may occur going forward. Look at total
prior year annual expenses related to emergencies and take all of this
information into account in budgeting for this category.
One-Time Large Capital Improvements
This is the
category that needs the least explanation. You are probably allocating your
budget accurately for one-time major expenses like a new community center,
tennis courts, or walking trails. Sometimes these expenses are made by
averaging vendor bids, which tend to be lower than actual charges. Be sure
you’re basing this budget item on realistic projections.
Here is a
key point to consider: Do your income statements give you an accurate snapshot
of YTD expenses—not just 1/12th of the annual budget? Are there unusual variances because seasonal
expenses weren’t allocated properly to the month of the service? Ensuring an
accurate budget for the year ahead results in accurate monthly income
statements for that year.
If you would like to learn more about specific budgeting processes and how they may help to better align your budgeting with actual expenses, give CMA a call!
37 Years of Community. Well Served. (www.cmamanagement.com)
Headquartered in Plano, Texas, CMA has three regional offices and numerous onsite locations providing contract management services for more than 250 residential and commercial communities, and more than 97,000 individual units.
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