Taking charge of a community association budget requires a great deal of planning and preparation and detailed, accurate record keeping.
While some community associations employ a property management accountant to handle their financial affairs, others share the responsibilities between their board members and volunteers. In either case, predicting and accounting for annual expenses is a vital part of the process.
Being able to accurately predict how much money your community association is likely to spend annually allows you to set your member’s fees accordingly and avoid overspending or overcharging. A well-balanced budget will ensure that your association’s revenue can cover all the necessary day-to-day community costs and leave enough for emergencies and unforeseeable expenses. It will also enable you to make sensible and appropriate purchasing decisions and know when to exercise restraint.
Detailed and accurate bookkeeping is at the heart of community accounting and will help to improve your budgeting skills year on year. Responsible record-keeping enables you to spot trends and anomalies and make reasonable adjustments where necessary. Using specialized property management software will alleviate the administrative burden, streamline your processes, and maximize your resources.
What are Community Association Expenses?
Any community association will incur expenses throughout the year. These expenses fall into two main categories: planned and unforeseen expenses, and having a separate budget for each is highly advisable. It prevents the association from spending all of its money on day-to-day operations and having nothing left for emergencies.
Operating Budget:
Your operating budget accounts for all the planned expenditures your community association predicts it will incur. These will make up most of your annual spending and take up most of your revenue.
Some community associations have fewer planned expenses than others and can charge their members lower monthly fees. These associations often have limited communal areas and offer fewer services and amenities. Other community associations will have high monthly payments covering multiple luxury services and amenities. Your operating budget should include all the known/planned expenses your association will incur over the year. These might include:
- Amenities Costs — This refers to swimming pools, gyms, tennis courts, and other facilities that your community members can access. The cost of running these facilities, maintaining, cleaning, and staffing them must be included in the budget.
- Service Costs — If your community members have access to valet, concierge, or similar services, then the cost of staffing and running them must be included as well.
- Administrative Costs — If your community association employs a legal team, a management team, an accounting team, or an administrative team, the cost of their services must be included in the budget.
- Utilities — Some community associations take care of water, gas, and electricity bills for their members. These costs are included in their monthly fee rather than being paid for separately.
- Contracted Services — A large part of any operating budget will go towards contracted services such as trash collection, waste disposal, lawn maintenance, gardening, landscaping, janitor services, security, and painting. If you live in an area prone to snow and ice in the winter, you should budget for snowplows and salting services.
- General Repairs and Maintenance — A portion of any operating budget should be set aside for general repairs and maintenance to plumbing, electricals, doors, and locks. The amount set aside will depend on the age and condition of the buildings in the community, with older buildings usually requiring more upkeep.
- Employee Costs — Some community associations set aside part of the budget to compensate community employees and award them certain benefits like healthcare.
Reserve Budget:
Your reserve budget is the money set aside for unforeseen expenses and emergencies. We all know that life is unpredictable. The community association or property management accountant must keep enough funds in reserve to tackle issues as they arise without charging members additional fees to fix them. Of course, reserve budgets require a delicate balance because members do not like to be charged excessive amounts for “hypothetical” instances, so small, regular contributions to this pot are preferable.
Money from the reserve budget should be set aside for various occurrences, including:
- Major Improvements — Major improvements are large-scale projects that community associations can embark on to increase the overall value of the properties they represent. These improvements are usually not essential, yet they can be highly beneficial to community members in the long term. These may include improvements to the external look of the properties or the building of a new luxury amenity like a tennis court or swimming pool.
- Natural Disasters — The reserve budget can be used in the aftermath of a natural disaster such as a flood, wildfire, or hurricane. If your community is based in a particularly hurricane-prone area, then you should set aside more of your budget to account for the likelihood of damages.
- Unforeseen Maintenance and Repairs — The reserve budget can cover the cost of sudden structural repairs or maintenance, such as collapsed walls, fallen trees, and leaking roofs. These are generally larger scale issues than those covered by the operating budget maintenance costs.
- Unforeseen Legal or Administrative Costs — If the community association suddenly were to face a pricey legal battle or administrative overhaul, the reserve budget could cover the costs.
How to Plan and Budget for Expenses:
One of the most effective things you can do to effectively manage your community association’s expenses is invest in specialist Property Management Software. Whether you are a property manager accountant or a community volunteer, having access to customized spreadsheets and flow charts that break down your specific expenses and chart your revenue will be an invaluable tool.
Using a rental property expense tracker will allow you to plot how much is being spent on individual rental properties so that you can keep track of trends and spot anomalies as they arise. A rental property expense spreadsheet can be tailored to reflect your community and will make it easier for you to understand what the fiscal picture looks like at a glance.
Expertly designed rental property management software allows you to access your accounting records wherever you are and stores them all in one place for easy reference. Whether you manage 100 or 5000 doors, the right software will streamline your processes and save you precious time and effort.
Final Thoughts:
Predicting and accounting for community association expenses does not need to be an arduous and time-consuming task. With the right property management software, you can customize your expenses spreadsheets and access comprehensive flow charts that illustrate your community spreading trends accurately and clearly.
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