An annual budget is the lifeblood of any financially healthy associa on. A properly cra ed budget guides the associa on in financial decisions throughout the fiscal year and helps minimize unexpected costs. Generally, the membership of your community will recognize the budget as a way of determining assessment amounts. While this is an integral part of the budget, it also provides for the con nuity of community services, helps the community maintain its desired quality of life, plans for ac v- i es, and provides an opportunity for the community to balance its needs versus wants. Working in tandem with financial reports, the budget is a means of controlling the en rety of the community’ s financial opera ons.
There are a lot of things an associa on should consider when preparing their budget, not the least of which is ming. Some associa ons have accounted for this ques on by designa ng a specific meline for budget prepara on in their documents. If your community does not have a designated meframe, aim for early in the third quarter( usually early July) to start dra ing your budget for the following year. Schedule a date for the budget mee ng as soon as possible and no fy the residents within the required me frame listed in the Florida statutes. Keep in mind the budget should be finalized with plenty of me le to send out the mailing to the membership and order coupon booklets for the community. It can be helpful to follow a reverse meline when scheduling the different parts of prepara on, star ng with the date you want to finalize the budget and fill in dates working backwards.
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The budget cannot simply annualize in many cases due to special projects that have either already occurred or will occur in the future. U lize the most current year-to-date figures to make adjustments to the budget including: the general ledger, most recent income statement, reserve studies if applicable, and a current A / R( accounts receivable) report.
Like any budget you need to allot for income and expenses. First, consider your poten al sources of income. The primary source of income for any community will be derived from assessments. There are very few restric ons on how assessment income can be applied and it is nontaxable. The frequency of assessments is generally set during development in the Associa on’ s Declara on. Rental income from associa on owned units should be considered an addi onal source of income. Take cau on when accoun ng for these funds due to the unreliable nature of rental units and keep in mind that these dollars are taxable. Interest on Opera ng and Reserve accounts as well as delinquent accounts can also be added to an associa on’ s total income. Remember to look for other revenue sources that are contracted such as: cell tower, signage, and bulk services contracts; and non-contracted sources such as: clubhouse rentals, laundry machines, parking permits, etc. Always be conserva ve when budge ng non-contracted revenue sources. Finally, if your associa on is in need of another source of income you can turn to the prior year’ s opera ng surplus as a last resort. This ac on requires full Board approval and the vote should be recorded in the budget mee ng minutes.
A er calcula ng your total income take a look at your expenses. The budgeted expenses are either an Opera ng or Reserve Expense. Opera ng Expenses cover your daily, weekly, monthly and yearly expenses. Restric ons are minimal in regards to the usage; the goal is to stay within your budgeted limit. Reserve Expenses are set aside for major capital expenditure repairs / replacements. The items that are being reserved for are required by Florida Law or the Associaon’ s Declara on and are established by the Declarant / Developer or by a membership vote. Reserves are highly restricted and can only be used for their respec ve categories. For example, road reserve funds can only be used for roads. Any other use of those funds would require a membership vote. All of the associa on’ s expenses are paid from reserve funds, therefore, the budgeted expenses should reflect the amount the Associaon is funding the reserves for that budget year.