The calendar
Work back from the first day of the fiscal year. Owners need the notice of the new assessment 30 to 60 days ahead in most states, the members or the board must adopt the budget before that, and the board needs a month to review a draft. For a January fiscal year the draft is due in September and adoption in October or November.
Step one: last year's actuals
Start from the income and expense statement for the last twelve months, line by line. The actuals are the only honest base. A budget built from last year's budget repeats last year's guesses.
Step two: known changes
Go through every contract and every known increase: the management agreement, landscaping, insurance (ask the agent for the renewal estimate), utilities at their rate increases, trash, elevator and pool service, the audit. Add the projects the board has decided on for the year. Add a line for bad debt equal to last year's write-offs.
Step three: the reserve contribution
Take the annual contribution from the reserve study and enter it as a fixed line. It is not the balancing figure. If the board cannot fund the study's number this year, enter what it can and record in the minutes how it will reach the recommendation.
Step four: the assessment
Total expenses plus the reserve contribution, less other income (late fees, amenity fees, interest), equals the assessment income needed. Divide by the number of homes in a planned community, or allocate by interest in a condominium, and divide by the billing frequency. That is the dues figure per home per period. If it rises more than owners will accept, the choices are to cut a line or to phase the reserve catch-up; the choice goes in the minutes.
Step five: adoption
The declaration says whether the board adopts the budget or the members ratify it. Several states use a ratification by default: the board adopts, sends it to the owners, and it stands unless a majority of all owners rejects it at a meeting. Follow the notice period exactly.
Step six: the notice
Send every owner the adopted budget and the new assessment amount, the first due date, and how to pay, within the notice window. Owners on autopay should see the new amount take effect on the first billing of the year without doing anything.
The lines
A budget template for a typical association, by chart of accounts group.
| Group | Lines |
|---|---|
| Income | Assessments, late fees, amenity and application fees, interest, other |
| Administrative | Management, legal, audit and tax, insurance, bank fees, office, postage, website |
| Utilities | Water and sewer, electricity, gas, trash, internet for common areas |
| Grounds | Landscaping, irrigation, tree care, snow, pest control |
| Buildings and amenities | Repairs, pool, elevator, gate, janitorial, fire and life safety |
| Reserves | Reserve contribution per the study |
| Contingency | Bad debt, unbudgeted repairs (2 to 5 percent) |