The Importance of Creating an Operating Budget

Every condominium association should have an operating budget. Most Bylaws of a condominium association will require that a budget be prepared by the board and presented to the owners at the annual meeting for approval. The operating budget is an essential tool that is used to determine what the condo fees per unit are going to be. The operating budget will
summarize the expected operating revenue and expenses of the condominium association for the upcoming fiscal year.

You should be sure to give yourself plenty of time to prepare your operating budget. The process of preparing an operating budget usually starts in the late Summer or early Fall season. The first step is to gather historical financial data. You will want to run an income statement for the last 12 months and compare this to the current operating budget. This will allow you to see which expense line items in the budget might need to be increased or decreased. You will also want to consult with you insurance agent and other vendors like landscapers to see what their expected future costs will be. It is also a good idea to have the operating budget set aside some funds each year for future capital expenses. Fannie Mae has a lending requirement that states 10% of the annual operating budget must be allocated to reserves. This guideline can be waived with a Reserve Study which will determine the amount that needs to be budgeted for reserves. The board should try to have the operating budget completed and ready to be voted on by the owners at the annual meeting in November or early December so that there is time to make any needed condo fee increases before the beginning of the year.

A well prepared operating budget is a great tool that can be used as a guide for the board all year long. The actual operating results of the association should be compared to the budget every month to determine where they need to focus their attention on. The association’s property manager or accountant can be utilized to help the board in preparing a budget if needed.

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