By the time the end of summer rolls around, it’s time to start thinking about community budgets. You’ll want to avoid procrastinating by waiting until October or November to start planning your budgets because that’s typically when budgets need to be approved and distributed. But first, why should you prepare an annual budget in the first place?
Why Are Community Budgets Important?
Community budgets are necessary to allow organizations and communities to keep control over their finances. Even more than that, budgets allow funders to see exactly how their money is being used. An annual budget can allow you to plan to better meet needs and to see specifically what your community can afford.
Additionally, preparing a budget creates an effective way to deal with financial issues as well as create problem-solving opportunities. A budget will allow you to see exactly where and for what you need additional funding and support. A budget is required when funding proposals or giving updated reports to funders and the community.
Perhaps the most obvious benefit to creating a budget is that it allows you to avoid surprises, to better maintain financial control over the community and community projects.
Terms to Know
Before we get into the steps to creating a community budget, it’s important to understand various terms used when doing so. Below is an explanation of the most commonly used terms:
- Projected Expenses: The amount of money expected to be spent in the upcoming year. Usually, projected expenses are separated into categories such as office expenses, repairs, salaries, etc.
- Fiscal Year: Otherwise known as “financial year.” It shouldn’t be assumed that the year in reference is January 1 to December 31 since, for example, the government’s fiscal year runs from October 1 to September 30. Many state governments and community-based organizations use a fiscal year that runs from July 1 to June 30.
- Projected Income: The amount of money expected to be brought in for the upcoming fiscal year. Typically, projected income is separated by the source, or where it comes from.
Things to Consider
There are specific things you’ll want to keep in mind while preparing your community budget. Throughout the planning process, consider the following things:
- Activities and programs most beneficial to your community and its individuals.
- How many people are needed to carry out each activity or program?
- For each staff member, consider their salary, hourly wages, or benefits, and how each worker will be paid.
- What all is needed to make sure everything runs smoothly. Keep in mind small things like supplies and bigger things like insurance.
With those things in mind, you can then take the following steps to prepare a thorough and professional community budget.
- Prepare A Business Plan
Before you can get down to planning a budget for your community, you first need to make a list of all possible goals the community wants to accomplish in the next year. If possible, it helps to keep things organized by month, that way you know ahead of time what month to include that cost in. You’ll likely need to have your business plan approved by the board.
- Requests for Proposal
Once your business plan is looked over and approved, you’ll need to prepare and send out requests for proposals, commonly referred to as RFP’s. You want to send out RFP’s to get a better idea of expenses, instead of just an estimation. It’s important to note that big contracts have the biggest impact on a budget. RFP’s are necessary for contract services for the upcoming year, including:
- Pool management
- Trash removal
- Insurance policies
- Lawn and landscaping
- Snow removal
- Annual audit and tax return preparation
- Look At Past Expenses For Maintenance & Repair
You want to be sure you have a good idea of the expenses paid for maintenance and repair in the last year. How much, on average, is spent on utility expenses per month? It’s important to have room for fluctuations, so keep an eye on the highs and lows for the year to be sure there’s enough room in the budget for these necessary expenses.
- Reserve Fund Contributions
The reserve fund analysis should be updated every couple of years to make sure enough is contributed to taking care of the predicted expense for updating the major parts the community is responsible for. These parts include playground equipment replacement or updating, parking lot paving, roof repairs, pool updates, and more. Is enough being contributed this year? Should you consider updating the reserve fund analysis for the budget for the upcoming year? It’s important to remember that the reserve fund contribution is a portion of the assessment levels that homeowners are responsible for paying. Reserve fund contributions need to be considered before assessment levels can be set for the upcoming year.
- Calculate & Document Your Numbers
After you get back the RFP’s or once you get a good idea of the predicted expenses for repairs, maintenance, or utilities, you can use Excel or Xero to start entering in known numbers. It’s a good idea to keep notes, and both Excel and Xero are great budgeting tools that allow you to input explanations or reasons for your calculations and estimations.
- Document Income Calculations & Requirements
At this point, you want to make sure you know the total amount of budgeted expenses. You can then start working on the income portion of the budget. With Late Fee Income in mind, consider all reliable sources of income that go into the total amount required to be covered by homeowner assessments. It’s probably a good idea to avoid including any leftover money in the bank from years past when making your calculations for budgeted owner assessment amounts since community associations utilize zero-based budgeting.
- Distribute the Approved Budget
The last and most exciting step is to distribute your approved budget to homeowners. More than likely you’ll have to do so using first class postage mailing, but it’s worthwhile to check to see if you can email the budget to those who have agreed to receive community information that way.