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FINANCIAL RECOVERY BEGINS WITH A
REALISTIC BUDGET
You can’t fix anything without money
Your members are your only real source of funds
Do not presume they will not pay
It is your job to budget accurately and be able to
support your budget with facts, figures,
contracts and pictures.
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
FINANCIAL RECOVERY BEGINS WITH A
REALISTIC BUDGET
Elements of a Recovery
REALTISTIC BUDGET
 Allows for payment of all contractual and fixed
operating expenses
 Recognizes delinquency, inflation and component
depreciation as inevitable
 Balances the needs of the community with the
financial ability of the unit owners
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
FINANCIAL RECOVERY BEGINS WITH A
REALISTIC BUDGET
Elements of a Recovery
Reserve Study & Other Expert Guidance
Property Restoration Plan
Accurate Financial History
Realistic Budget
It is your attitude that will have the greatest impact
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
FINANCIAL RECOVERY BEGINS WITH A
REALISTIC BUDGET
Elements of a Recovery
Reserve Study
 Performed by a certified Reserve Analyst
 Evaluates component condition, life expectancy
and replacement cost
 Projects replacement cost outlays for future
years and evaluates needed contributions
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
FINANCIAL RECOVERY BEGINS WITH A
REALISTIC BUDGET
Elements of a Recovery
Property Restoration Plan
 Prioritizes repairs and improvements
 Projects costs
 Includes preventive maintenance
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
FINANCIAL RECOVERY BEGINS WITH A
REALISTIC BUDGET
Elements of a Recovery
Accurate Financial History
History repeats itself unless those shaping the
future know the history and how to avoid a repeat
Absent zero-based budgeting, history is the best
forecaster of expenses such as utilities
History shows that inflation is a factor that must
be considered in future projections
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Major Factors in Budget Development
Reserve Contributions
Probably the single most important component of
the budget in protecting the future value of the
property for the present owners and those to
come.
It is your FIDUCIARY DUTY to protect the inclusion
of this line-item in the budget.
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
IT’S NEVER TOO LATE TO PLAN FOR RETIREMENT
of your property components
But, like your own retirement, the later you start, the harder it is
Monthly deposits to save $250,000 at 3% interest
 20 years -> $760/mo
 10 years -> $1,785/mo
 5 years -> $3,858/mo
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Major Factors in Budget Development
Fixed Operating Expenses
Contractual services, Administrative costs
Generally those expenses which, while you can shop for
better prices, changes in the costs will be longer-term goals.
(You have contracts in place at this time)
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Major Factors in Budget Development
General Operating Expenses
Ongoing and unavoidable costs over which
there is more control
Utilities, Payroll, Building Repair Services
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Major Factors in Budget Development
Non-Operating Expenses
Debt principle payments, transfers to
reserve, taxes
Generally items which might not be tax
deductible
Note: You might need to budget for an operating profit to
cover non-operating expenses
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Budget Development Timeline
Preliminaries
Last Year’s Budget
This Year’s Actuals (year-to-date) plus projections
Contracts/Proposals
Management Plan-Property Restoration
Reserve Study
Loan amortization tables
Inflation Rate/Utility Inflation Rate
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Timeline
5 months prior to fiscal year – Gather Data:
insurance, contract and reserve analysis
4 months prior to fiscal year – current year
projections
3 months prior to fiscal year – next year
projections and adoption of proposed budget.
Mailing to homeowners.
1-2 months prior to fiscal year – board meeting
for final budget approval & notice to members
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Educating the Board
When cutting expenses, start from the bottom
Reserve Contribution
Contractual Expense
Fixed Operating Expenses
General Operating Expenses
Enhancements
Those that pose a health or safety risk
Those that get more costly with time
Cosmetic improvements / discretionary spending
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports
Educating the board
 Budget basics
 How to read a reserve study
 Duty to maintain the property and infrastructure
 Duty to manage finances in a fiscally sound manner
 Duty to exhaust all efforts to collect from every
member
A Fresh Start for Your Community
®
BMDP-201
Budgeting & Financial Reports