Reviewing Your Budget Understanding the Bottom Line

Preparing the annual budget is by no means an easy task. Those charged with preparing cooperative, condominium or HOA budgets will soon begin reviewing costs, gathering data and projecting expenses for the coming year. Communities, businesses, individuals, families, groups and organizations of all kinds must have a budget in place in order to navigate both everyday expenses and unexpected costs, while maintaining a certain life or business style. A well-defined, well-written budget is a powerful financial tool allowing funds to be saved and/or allocated for specific costs and projects; budgeting is a way to estimate expenses and allow for those funds to be available when needed.

Budgeting for co-op, condo or HOA communities actually involves not one, but two budgets, each covering a specific range of expenditures. Recurring (and more or less predictable) expenses such as taxes, utilities, staff salaries, insurance and maintenance are the line items most frequently found in the operating budget. Major projects, and long term plans, and emergency funds are budgeted for in the capital budget, and those items will vary, depending on the individual community’s needs, wants, and means.

“You have to be realistic about what those fixed costs are going to be,” says Amanda C. Brady, CPA, a manager at the accounting firm of Wilkin & Guttenplan, P.C., which has offices in Manhattan and East Brunswick, New Jersey. “You need to look at what your replacement fund is. You know that you have to have insurance, you know that you have to have certain items, that you have to have a managing agency. You have to look at what those fixed costs are in order to be very realistic about how you're going to come up with what your maintenance fee is going to be for the year,” she says.    

While expenses are divided into operating or capital expenses, income is generally obtained only from HOA dues or fees, and any fines or penalties incurred and repaid by residents. When any member of the board is unclear or confused on which budget should be assigned which cost, it can be difficult for the board to function properly and to uphold the fiduciary duties for the community. That's why it's important for every board member to have at least a working familiarity with the way their community's budgets function and interact.

The Budgeting Process

Reviewing the existing budget and formulating a budget for the upcoming year is an annual duty for the co-op, condo or HOA board. Property managers play a central role in the budget, and the process starts with them. The manager usually prepares the draft budget, reviews it with the treasurer, and the finance committee, and the board. “Most of the property managers do the leg work on it,” says Stephen Beer, CPA, a partner with the Manhattan-based certified public accounting, auditing and management consulting firm Czarnowski & Beer, LLP. By working with managers, Beer says, accounting pros can gain a clearer, more specific picture of what a building or association needs to budget for and how to plan accordingly.


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  • I live at a cooperative in westchester county whose annual budget consists of on sheet of paper listing 8 income sources and 45 expense items in absolutely no logical order. No cover page is included to explain it. No pie charts are included to explain how 45 expenses visially represent only 6 to 8 items of significance. No follow up is done at year end to compare the budget to the actual results with the Audited Annual Report and no mention is made of signigicant variances between budgeted and actual costs. The board president has been there for 1/4 of a century and the treasurer for over a decade. Neither seem to be aware of the significance of their legal responsibility to produce a budget and deliver it to shareholders annually. Their ability to actually accomplish anything better is questionable. I attempted to get my message accross to them but it does not seem to work. I was planning to approach the Managing Agent and attempt to inmplement a budgeting process which would reflect 21st century technology or at the least a cover page and a year end follow up to discover variances and then have the board of directors explain then to shareholders. Let me know it this sounds like a logical approach or if you have a better idea, i would love to hear it . Please let me know
  • Our fiscal year begins June 1, The covenants call for a budget to be prepared for approval by May 1. Can you suggest an appropriate and valid way to estimate April and May non-fixed expenses to be included into next years' budget?