Finances

Budget Preparation: A Way of Life

Last year, soon after a manager finalized the draft budget for a mid-sized HOA, it was adopted uneventfully and put into play for this current 2019 fiscal year. The budget plan came together rather easily because the manager was prepared.

Maintaining an organized assembly of documents is important to support each and every line item in the preparation of a budget. To prepare for this budget, the manager assembled and reviewed the financial reports, invoices and expense histories, the reserve study, contracts, insurance policies, changes in the state law and how the governing documents played a role in the budget. A regular review of the documents, contracts and professional studies help bring clarity to the common area maintenance needs and the consequences of inaction, so the annual exercise is certainly worthy. This routine has been repeated annually and helps the decision makers get support for current, and future, budgets. It is important to note here that this manager always seems to know what’s going on and this board of directors always seems to be proud of their community!

Using Excel, it took very little time for the manager to put together the draft budget presentation. More on that later. The time committed thoughtfully going over the contracts, the professional studies, the financial condition of the association and maintaining good relationships with fellow professionals, owners and decision makers is much more, in fact a lifetime.

The ever-mindful community association manager is strongly familiar with the community and remains so by providing insight to the ongoing ebbs and flows of the business. A business tends to flourish when the decision makers compare actual results to the budget plan in a timely manner. When you tell the board why particular budget line items are way-on or way-off, you help maintain familiarity with the current budget and the budgets overall purpose. Are the grounds contract invoices matching up with the amount the decision makers planned to spend?  Is actual assessment income the amount the decision makers thought it would be? Did changes in state statutes affect the budget plan? To help the decision makers reconcile homeowner wanna-haves and the gotta-haves and to gain support for the budget plan, the manager scheduled a meeting to present the draft budget in a relatively informal, yet business like setting.  This gave the members a sense of ownership in the decisions.

The habit of staying in budget preparation mode can be invaluable to the process of planning for the future of the community.

When it comes time to take stock of the physical and financial conditions of the property, literally, reforecasting results and comparing those predictions with trends and expectations help the decision makers remain confident in their budget planning.  Routine reporting of material budget variances helps assimilate reality into the budget, helping keep the balance sheet pointed into the wind with a stable and predictable member assessment.

Speaking of Excel and similar spreadsheet software, and before you walk towards that incredibly sparkly shiny duel monitor display at your desk, remember, Excel does not do the budget. You do the budget. You do it by intuitively knowing the desired results and what information you will need to help you get those results. By staying with your timeline of document assembly and review, Excel can then help you transmit your thoughts and good work in understandable and business-like form.

By the way, learning the basics of budget preparation and Excel take a couple of hours, maybe a day. Learning to print the spreadsheet is something few have mastered but is also surprisingly easy and requires only that you join CAI and encourage others to join CAI, and then I’ll show you how!


By George J. Ellis, III, CMCA, AMS, PCAM

George is the majority owner of SFMC, Inc., an AAMC. Based in Northern Virginia, SFMC, Inc. has been providing management services to clients in the greater Washington metropolitan area since 1996. Involved in community associations since 1988, George has experience in all areas of physical and financial management of community associations, recreation associations and active adult communities.

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