Opera ng expenses can be broken down into two types : contracted and non-contracted expenses .
-Contracted Expenses : cover long-term contracts for either service or u lity agreements . These are known expenses that will only change based on a renewal increase or change of scope to the current contract . Examples are Landscaping Contracts , Security Services , Professional Agreement for legal and CPA counsel , and Bulk Cable Agreements . Make sure to adjust for infla on ; the current rate per year is 3.22 %. Reach out to vendors to ask for next year ’ s rates or review the renewal clause to avoid unexpected adjustments to the final budget due to rate changes .
-Non-Contracted Expenses : cover general repairs and maintenance , administra ve expenses , u li es , special projects , and everything that is not covered by contracts . The cost of these expenses are either known or unknown . “ Known Expense ” amounts can be determined by proposals from vendors or trend history . Examples are annual plant rota on or mulch replenishment . These known expenses will occur at some point during the budget year and generally have a marginal variance of over / under spending . “ Unknown Expense ” amounts can be calculated by es ma ons , vendor sugges ons , and trend history . Examples of unknown expenses are irriga on and entry gate repairs . The goal is to minimize the margin of over spending on these items . Unknown Expense funds are only used as needed in the event something breaks or needs replacement .
The Opera ng Expenses are broken down into the following general categories required but by but not limited to the Florida statutes : -General Administra on : Management Fee , Office Expenses , Insurance , Bad Debt , Professional Fees ( A orney / CPA ), etc . -Grounds Maintenance : Landscape Contract , Irriga on Repairs , Landscape Replacement , Mulch , Tree Trimming , Lake / Pond / Fountain Maintenance , Minor Infrastructure Repairs , etc . -Repairs & Maintenance : Entry Gate Repairs , Pressure Washing , Fence Repairs , Signage Repairs , Electric Repairs , Perimeter Wall repairs , etc . -Recrea onal Area : Pool / Cabana Cleaning contracts , Pool Equipment Repairs , Pool Furniture Repairs , Cabana / Clubhouse Supplies and Repairs , Playgrounds Maintenance , etc . -U li es : Electric , Water / Sewer , Phone / Internet , Cable , etc .
Reserve Expenses : While this is labeled an expense , consider it the amount the Associa on will fund the reserves for that budget year . Reserve funding can be determined by a reserve study or professional quotes . The goal is to determine the components or assets that the Associa on is responsible for maintaining . From there determine the remaining life and replacement cost for each component / asset . Knowing this informa on will allow you to calculate how much money is needed each year in order to ensure the Associa on will have adequate funds for the reserve items when the me for repairs / replacement occurs . Either a Component Method ( aka Straight Line Method ) or Pooled Reserve Method can be used to fund reserves pursuant to Florida law .
If you find the assessment amount will increase for the membership a er the budget is finalized , first review your associa on documents to determine the maximum percentage allowed in a year . Consider the other sources of income that can be incorporated into the budget to reduce the assessment increase . Examples include rental income , interest , resale contribu ons , cable easement agreements , and prior year opera ng surplus . If the income is not guaranteed to be received ( rental income / interest ) you are running a risk of not having adequate funds for that budget year . This would result in a poten al long-term cash flow issue . The prior year opera ng surplus should only be used as a last resort . The rule of thumb is to use this op on only if the associa on operated at a surplus ( more income than expenses ) for three consecu ve fiscal years . Finally , make sure to monitor your budget each month to determine projected to actual opera ng results . Preparing an associa on budget can be a lengthy and some mes difficult process ; however , if done correctly will ensure your associa on is mee ng their fiduciary responsibility and on the path to financial health .