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For association management companies in these unique times, it’s likely that holding additional working/brainstorming board and/ or committee meetings dedicated to budget preparation will not be something we’ll be able to comfortably rely on this year. In fact, it’s more realistic to anticipate that we will have only few opportunities to collectively discuss the budget between now and the time when the budget needs to be finalized and adopted. Therefore, if the 2021 budget preparation timeline has not been prepared yet, one should be created now and commence with the following tasks:

 

Project Cost Increases

Project cost increases for the coming year by contacting/inquiring with payees of budgeted expenses (utility companies, insurance representatives, contractors that service the association, retailers of goods routinely purchased by the association, etc.) for their projection on cost increases.

Examine Spending Patterns

Review historical accounting expense ledgers to identify past spending patterns to assist in determining future expenses. In addition to the projected increases we are notified of by vendors (see above), we must also consider any known circumstances that may be unique to the ensuing budget year that may not have been considered/budgeted in prior years and include that in the budget in addition to recurrent amounts.

Reserve Study

A vital component of  the budget is the reserve study. Although capital (or reserve) expenditures are typically drawn from a separate fund from the operational account, one major expenditure that is an operating expense is the amount dictated/prescribed by the reserve study that the association must pay (contribute) to the reserves every month along with paying the recurring operating expenses. The purpose of this contribution is to save and build up the reserves to pay for future scheduled capital expenditures, also dictated/prescribed by the reserve study.

Note: think of the operating account as your checking account, where you pay your routine, recurring bills and your reserve account(s) as your savings that you put money in every month to pay major planned expenses that come up from time to time.

In order to complete the budget, it is vital to first complete an update to the association’s existing reserve study, or engage a professional reserve study expert to prepare a new reserve study.

 

Since their founding in 1929, Hawaiian Properties Ltd of Honolulu, HI, has offered tailor-made professional association management services. With a highly experienced team of over 30 property managers and 50 administrative and accounting staff, these management experts provide exceptional service to more than 30,000 units throughout Honolulu, Oahu, and Kona. To learn more about how they can benefit your community, call (808) 539-9777 or visit their website.
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