by Chrissy Jackson
Because of all the complexities involved in creating an accurate budget, it requires time to thoroughly research each item, review supporting data, and make a projection for next year. At the very least budget preparation should start 3 – 4 months prior to the beginning of the new fiscal period.
However, as you will soon learn in the following, the thought that goes into creating an effective budget, the research, and the making of notes, really is a continual process. Many community managers keep a folder on their desk or readily available in a drawer that says “Budget Notes” and into it they constantly put things that they notice throughout the current year. This may be a note that something needs to be included in the budget next year because they noticed a shortfall this year. It may be an adjustment to an income category due to a mid-year Guideline change (late fee increase, for example) or policy change (elimination of application fees, for example).
Other items that need to be included in this “Budget Notes” folder will become more apparent to you as we continue to progress through the creation of the budget. Once you have created a budget, you will spend the rest of the year more aware of the things that are needed, and this folder will be a great place to put them. The more organized you can be when starting the actual creation process, the more effective your finished budget will be. And, that makes it a more valuable tool for you.
The creation of a budget has often been referred to as someone looking into a crystal ball and trying to see the future through clairvoyant methods. In reality, that is fairly close to the truth. The one additional thing you have going for you in this effort, however, is the historical knowledge of the community performance. The next article will show you how to use this as the foundation for creating an effective budget.
Who Creates a Budget?
Depending on the size of your community, and the size of the company that owns the community, the number of people involved in creating a budget can vary from one to as many as ten or more. And, if there is a board of directors who must approve the final product, their input, while not used in the actual creation of the budget, might change the final product.
In the situation where the community is owned by a sole proprietor, it will be that person who creates the budget, since it is probably a rather small community and most likely an owner/operator situation.
A little larger situation might be where it was a partnership or corporation of some type that owns the community. In this instance, it would probably be an absentee owner with an onsite community manager. Depending on the relationship between the two, the tenure of the community manager, and the openness of the owners, the budget creation varies. Some of these situations do not actively involve the community manager in reviewing the financial statements, making active decisions about purchases or capital improvements, or even knowing the financial goals of the community. In those cases, it is back to the owner to create the budget. If, however, the community manager is involved in the financial end (reviewing, making decisions, etc.) then they should be at least somewhat involved in the budget creation process.
In larger communities where there is a maintenance supervisor who has a fairly good sized staff (three or more plus the supervisor) it is another opportunity to get one more person involved in helping put good information into the budget process.
In a typical property management company, there are regional managers who also work with the budget creation. A regional manager may supervise as many as 15 or more community managers. By working together, and getting input from onsite staff when applicable, the budget is more accurate, better understood, and becomes a more effective tool. ##