Adopting Realistic BudgetsSpeakersDan Levine, MBA, CPA - Tomasetti, Kulas, and Company, P.C.Karl Kuegler, Jr. AMS, CMCA, PCAM – Imagineers, LLC

ModeratorGreg Zajac, EBP - Building Renewal, LLC

13/16/2019

Outline of Presentation• The Purpose of a Budget

• The Role of the Manager

• Budgets in General

• Budget Process Timeline

• Delivering the Budget to the Community

• Putting the Budget Into Use

• Conclusions & Takeaways

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The Purpose of a Budget

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The Road Map for the Year

• Where on the Map Are You Starting?

• Charting the Course to Get Back on Course

• "If you don't know where you're going, any road'll take you there“

• Don’t Wander Aimlessly – Know Where You Are Going

• While taking the first step is commendable, without direction its still called wandering. (PDCA)

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The Role of the Manager

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Our Responsibility As Managers

• Presenting & Guiding the Board to a Realistic & Sound Budget

• Understand How to Prepare, Deliver and Approve a Budget

• Be Able to Present the Facts – As Unpleasant as the Facts May Be

• Move the Process Along to Ensure Timely Approval

• Be the Professional – It’s Not Personal

• The Financial Stability of the Association Depends on It

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As Managers,We are Required to……

Sec. 20-456. Grounds for revocation, suspension or refusal to issue or renew certificate of registration. …….. (8) a knowing and material violation of any provision of chapter 825 or 828 (aka… CIOA)

CMCA Standards of Professional Conduct…….. Always be truthful.

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Document Your Efforts

• Inclusion of Budget Drafts & Materials in Board Packages

• The Minutes of the Association

• Email Communications

• Documenting Drafts Provided to Board

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Budgets in General

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Common Sense Techniques• What method of accounting does the Association use?

• Cash basis or accrual?

• Zero Based Budgeting• Start from scratch• Can help with cost control

• Base Line Budgeting• Starts with the prior year as a base• Shorter time commitment in creating

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Other Budget Considerations• Overlooked Budget Items

• Bad Debt

• Loan Principal

• Insurance Deductible

• Contingencies

• Taxes

• Reserve Budget

• Contributions

• Interfund Loans

• Seasonality/Special Assessment

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Budget Accuracy• Does the budget reflect the overall goals for the year?

• Are all necessary projects funded through the budget?

• Are the long term goals of the Association also factored in?

• Reasonableness test?

• Does it make sense?

• Compare to prior year

• Is the budget broken down by month?

• Will help reduce odd budget to actual variances from month to month

• Leads to more accurate analysis each month

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Sec. 47-261e. Adoption of budgets. Special assessments. Loan agreements. (a)(1) Except as provided in subdivision (2) of this subsection, the executive board, at least annually, shall adopt a proposed budget for the common interest community for consideration by the unit owners. Not later than thirty days after the adoption of a proposed budget, the executive board shall provide to all unit owners a summary of the proposed budget, including a statement of the amount of any reserves, and a statement of the basis on which such reserves are calculated and funded. Simultaneously, the board shall set a date not less than ten days or more than sixty days after providing the summary for either a meeting of the unit owners or a vote by ballot without a meeting to consider approval or rejection of the proposed budget. If, at that meeting or in the vote by ballot, a majority of all unit owners or any larger number specified in the declaration votes to reject the proposed budget, the proposed budget shall be rejected. If, at that meeting or in the vote by ballot, a majority of all unit owners or any larger number specified in the declaration does not vote to reject the proposed budget, the proposed budget shall be approved. The absence of a quorum at such meeting or participating in the vote by ballot shall not affect rejection or approval of the proposed budget. If a proposed budget is rejected, the budget last approved by the unit owners continues until unit owners approve a subsequent budget. If a proposed budget is not rejected in accordance with the provisions of this subdivision, the proposed budget shall be deemed approved.

What Does CIOA Have to Say?

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Budget Process Timeline

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Board Approves Budget

Within 30 Days Notice Sent to Owners

Meeting Held Within 10 to 60 Days of Notice

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Delivering the Budget to the Community

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Bad News Rarely is Received Well When Sprung Last Minute

• Give the Community Time to Come to Terms

• Foreshadow What Lies Ahead

• Provide Adequate & Accurate Information

• Be Prepared to Answer Questions

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Explaining the Situation• Explaining Fee Increases & Special Assessments

• Paying for Current Use of Common Elements• Expenses Increase - Not Increasing Fees Results in Reduced Quality of Service• Why Would a Unit Owner Unable to Absorb a Fee Increase be Better Able to

Pay the Large Assessment that is Likely to Occur• Other Costs to be Incurred as a Result of Delaying Revenue Increases

• Write offs, collections rates, tension, time waste

• Squeaky Wheels & Naysayers• Explaining the Use of Prior Year Surpluses & Impact of Prior Year Deficits• Use the Past History to Explain the Current Situation

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When Budgets Get Voted Down

• Even a voted down budget serves a purpose• What’s next• Working to maintaining Community even when opinions differ• If first you don’t succeed, try, try again• Start early if ratification may in question

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Putting the Budget Into Use

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Putting the Budget Into Use• PDCA

• Monthly tools to determine if you are on track

• Remaining budget as a forecast

• Cash Flow Projection• Balance Sheet Forecasting

• Profit & Loss (P&L) Adjusting

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Cash Flow Forecasting- Balance Sheet

• Data Assumptions• 20XX Data

• Accounts Receivable is:• $3,000 Common Charge

• $2,000 Special Assessment

• Accounts Payable is 100% Paving

• 20X1 Data• Accounts Receivable is:

• $2,000 Common Charge

• $5,000 Special Assessment

• Accounts Payable is 100% Legal

12/31/20XX 1/31/20X1 Difference

Assets

Cash 10,000.00 12,000.00 2,000.00

Accounts Receivable 5,000.00 7,000.00 2,000.00

Prepaid Insurance 2,000.00 5,000.00 3,000.00

Total Assets 17,000.00 24,000.00 7,000.00

Liabilities

Accounts Payable 2,500.00 18,000.00 15,500.00

Deferred Insurance Claim 1,300.00 - (1,300.00)

Equity 13,200.00 13,200.00 -

Net income (Loss) (7,200.00) (7,200.00)

Total Liabilities & Equity 17,000.00 24,000.00 7,000.00

Amazing Condo Inc.

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Cash Flow Forecasting- Balance SheetAccrual Budget

Balance Sheet

Adjustments Cash Budget

Income 1/31/20X1 1/31/20X1

Common Charges 20,000.00 1,000.00 21,000.00

Special Assessment 5,000.00 (3,000.00) 2,000.00

Insurance Claim Income 1,300.00 (1,300.00) -

Interest 20.00 - 20.00

Total Income 26,320.00 (3,300.00) 23,020.00

Expense

Management Fee 300.00 - 300.00

Legal 18,000.00 (18,000.00) -

Maintenance 3,050.00 - 3,050.00

Snow Removal 2,870.00 - 2,870.00

Insurance Expense 9,100.00 3,000.00 12,100.00

Paving 200.00 2,500.00 2,700.00

Total Expense 33,520.00 (12,500.00) 21,020.00

Net Income (7,200.00) 9,200.00 2,000.00

Starting Cash: 10,000.00

Ending Cash: 12,000.00

Amazing Condo Inc.

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P&L Modification Approach

Jan Feb Mar Apr

Total Income 26,320.00 25,020.00 25,020.00 20,020.00

Total Expense 33,520.00 15,520.00 15,520.00 15,520.00

Budgeted Net Income (7,200.00) 9,500.00 9,500.00 4,500.00

Cash Flow Adjustments

Change in Accounts Receivable

Common Charge 1,000.00 - - -

Special Assessment (3,000.00) - - 3,000.00

Prepaid expenses (3,000.00) 1,000.00 1,000.00 1,000.00

Change in Accounts Payable

General Payables 15,500.00 (6,000.00) (6,000.00) (6,000.00)

Deferrals (1,300.00) - - -

Cash Basis Income 2,000.00 4,500.00 4,500.00 2,500.00

Starting Check Book 10,000.00 12,000.00 16,500.00 21,000.00

Ending Check Book 12,000.00 16,500.00 21,000.00 23,500.00

20X1 Budget

Amazing Condo Inc.

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Cash Flow Cheat SheetChange Impact On Cash

Increase in Assets Decrease (use) of Cash

Decrease in Assets Increase of Cash

Increase in Liabilities Increase of Cash

Decrease in Liabilities Reduce (Use) of Cash

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Conclusion & Takeaways

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Conclusions & Takeaways• Accounting is Your Friend

• Bad Budgeting = Big Problems

• It’s Not Personal, Just Business

• Due Diligence

• Use Your Network of Professionals in Delivering Sensible Budgets

• Don’t Make the Association’s Problem Your Problem

• Its Better to Have the Right Budget Voted Down than to Settle on a Budget Out of the Gate that is Unrealistic

• The Budget is the Life Blood of the Association – Approve it Correctly

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Questions&

Comments283/16/2019