Condo Media - July 2021 - 27

The amount of fi nancial information
provided to board members and managers
can be overwhelming. There is so
much information to sift through that it
is easy to lose the forest through the trees
in the process. It's important that board
members and managers understand how
to read the relevant reports and focus on
the more valuable information.
The most important fi nancial report
arguably is the " Budget Variance
Report, " sometimes just called the
" Budget. " This report should provide
the user an analysis of each budgeted
item of income and expense showing
the current year budget, the current
year actual, and the prior year actual
for each line item. This allows the
user to evaluate current year performance
relative to both the budget
and the prior year actual, which is
extremely valuable information
with which to identify trends.
COMPARING BUDGET
TO ACTUAL
A condominium association budget
projects income and expenses for the
following year and ultimately uses this
report to decide how much in member
assessments will be billed for next
year. Of course, no one can predict
the future with certainty, so these
budgeted income and expenses are
" educated best guesses. " The Budget
Variance Report is a powerful tool to
compare those expectations to actual
income and expenses incurred as the
year progresses. Remember, while
theoretically the goal should be to be
on budget for every line item, that is
unrealistic in the real world; in fact,
it is probably a red fl ag, as it is virtually
impossible to be right on budget.
The goal is to set reasonable expectations
to properly bill unit owners,
cover necessary expenses, and contribute
to the replacement fund.
When reviewing the budget, the
top line should be member assessincome
should not deviate from what
was budgeted. If member assessment
income does not exactly equal the
budget, it is possible that the association's
assessments receivable (unpaid
fees) or prepaid assessments reports
are also inaccurate. It is highly recommended
to retain a management
company that can help manage the
fi nances of the association. Management
companies can help properly
set annual budgets, bill unit owners,
pay bills timely, monitor cash fl ow,
and provide fi nancial reports to the
board at pre-determined intervals,
most commonly monthly.
Remember, while theoretically the goal should be
to be on budget for every line item, that is unrealistic
in the real world; in fact, it is probably a red fl ag,
as it is virtually impossible to be right on budget.
ment (condo fee) income, and if the
actual member assessments do not
equal the budget, then something is
amiss. A board will set annual member
assessments several months prior
to the beginning of the new budget
year, therefore, what is billed for
Comparing expense line items budget
to actual is where critical thinking
comes into play. There are very few
expense line items that should end up
exactly on budget. Annual contracts
regardless of volume, like management
fees, are expected to be on budget.
Informationas a
Making Tool
July 2021 CONDOMEDIA 27
Condo Media - July 2021

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