Keeping Your Budget Fiscally Healthy is a Balancing Act
In order to protect the real assets of the community – which include the buildings, the common area components, and the facilities, Boards of directors need to make sure not only the present is taken care of, but also that they have a plan for the future.
The 2 Sides of Your Community Association Budget: The Present, and The Future.
There are two sides of the coin when it comes to managing your community. The first is known as “expenses,” or OpEx, and the second is called “capital expenditures,” or CapEx.
The Present – OpEx
Operations and Maintenance expenses, or OpEx for short, are all of the expenses associated with the day-to-day operations at your property. This includes salaries for staff and your management company, utilities (water, electricity), preventive maintenance and repairs, insurance payments and more. Typically a large portion of your budget will be dedicated to these costs each month.
The Future – CapEx
Capital Expenditures, or CapEx for short, are all of the one-time projects and large replacement and maintenance projects a community association needs to make in their mission to preserve, maintain and protect the property for the future.
CapEx includes things like roof replacements, HVAC replacements and other major projects that are necessary to keep your community safe and up-to-date. For a community with other assets and facilities, CapEx includes those too, like resurfacing asphalt or painting.
Many communities focus on the operating side of the community, as that represents the problems that need to be dealt with right now. It’s easy to put off things that haven’t happened yet, especially when the board members don’t want to be the ones to take unpopular positions like raising assessments to fund some future breakdown.
Focusing Too Much on One Side Creates an Imbalance
In an ideal world, you could just ignore one side of this equation—that would make things much easier, wouldn’t it? Unfortunately (or fortunately) this isn’t possible; both sides are necessary for a successful association.
If you only focus on saving money in the short term, you’ll find yourself in trouble later on down the road when your building needs repairs and there’s no money left over from past years’ operating budgets to pay for them. Conversely, if all your focus is on capital expenditures with no regard for operating costs then eventually there won’t be any community left to prepare for the future!
Great community association managers know that keeping a community healthy needs more than just taking care of the day-to-day operations. It’s about finding a balance between protecting your property today, while also planning for its future.
You can’t have one without the other. In order to properly manage your association and maintain a healthy financial position for both today and for tomorrow, you need to prioritize as well as plan for both sides of your property.
The key is to balance both sides so that your association has enough resources available now while still being prepared for tomorrow’s expenses (and vice versa).
