Each year businesses sit down and discuss their annual budget. Then, they reflect on the previous year and make plans for the year ahead. While you may think this only involves companies, an HOA is no different.
As an HOA, it is essential to draft a thorough and thoughtful budget annually.
An HOA budget is vital to the financial success of a community. However, many organizations fail to prepare a budget or are unsure how to start.
If you’re unsure where to start or want to improve your HOA’s current practices, we’ve put together five tips for preparing your HOA community budget.
Tip #1 – Create a Team
When creating a budget, we recommend putting a dedicated team together. By dedicating a team to focus on your HOA budget, you can work more efficiently and streamline the process.
When comprising your budget team, have various board members and community members. Your team will include board members, a president, treasurer, HOA community manager, and committee heads to handle the finance and budget sections.
Consider enlisting a financial consultant or accountant to help!
You will find a higher chance of success by creating a team solely responsible for preparing your HOA budget.
Tip #2 – Schedule Budgeting Meetings
Once you put together your tasking team, you may be motivated to knock out your budget planning that same day or at the end of a pre-scheduled meeting.
However, your budget is essential and should not be an afterthought or “tacked on” to another meeting. You don’t want to discuss your budget while distracted or tired from the initial meeting.
Set aside time dedicated to your HOA’s annual budget. It could be one or several meetings, but set aside time to focus solely on the budget. This way, your team has time to consider all factors.
Your HOA’s budget is vital to your communities success, so go into the meeting with a clear mind, take breaks, and don’t rush through it.
Tip #3 – Anticipate Surprises
During your meeting, look at your current expenses. You can not move forward on a new budget without reflecting on your current financial standing and past finances:
- Analyze the last two years of your records.
- Review your previous budget against the actual costs.
- Note instances where you overspent or didn’t spend enough.
By understanding your previous spending, you can better allocate funds in your new budget.
When working on your new budget, leave room for unexpected expenses like:
- Homeowners not paying their dues
- Vendor prices rising
- Natural disasters
Now that you know your financial standings, how money moves within your HOA, and you have included some padding, you can make educated decisions when putting your budget together.
Tip #4 – Outline Your Goals & Objectives
Before you can finalize a budget, you need to develop a plan. Look ahead. What do you envision for the community in 1, 3, or 5 years?
By looking ahead, you can determine the direction your association needs to take and the investment it will need. We recommend putting together short and long-term goals so you know what immediate changes you need to make.
As you establish these goals, take your community’s opinions into account. Before entering your planning session, or at the very least before settling on a budget, make it a point to survey all homeowners to understand their experiences, wants, and needs.
A few example questions would be:
- What do you like about the community?
- What should remain the same?
- What changes do they want to see?
Speaking to your community about their wants and needs helps determine your objectives and the future of your community. Once you and your team outline your goals, you can budget accordingly.
Tip #5 – Maintenance, Utility Costs, and Savings
One of the unavoidable problems of any community is the maintenance and utility costs. A beautiful community is excellent for property value and pleasing to the eye, but property value can suffer if we ignore necessary repairs or replacements.
Repairs and replacements can be expensive, and they take up a large amount of every HOA budget.
In tip #3, we recommended reviewing your previous year’s budgets to see how best to allocate money in the future. This includes how much money the HOA invested in maintenance, repairs, and utilities.
We recommend creating a “Reserve Fund” when preparing your budget. A reserve fund is essentially a savings account for your community. For example, the HOA will set aside a portion of the community’s dues every month. That money will go towards the HOA’s plans for future repairs and replacements.
Try to set aside at least 20% of your income for your reserved fund. You want to ensure that you create a healthy account to help the community when you need it.
Revisit your reserve fund on an annual basis and as your community changes. This will help you when allocating the upcoming year’s budget.
Pro tip: Many states have laws around reserve funds, so ensure you do your due diligence to be state compliant.
Now that you have taken all these factors into account, we can start creating your HOA budget. Start by listing all your anticipated costs. Anticipated costs can look like: Income, Utility, Contract services, etc.
Next, list the estimated costs of each anticipated cost. Once you arrive at your final budget, divide it by the number of homeowners, and there you have it – your HOA fees!
One of the biggest downfalls we see when HOAs prepare a budget is that it’s never revisited once the budget is created. First, create a budget that is realistic for your HOA community. Next, review your budget quarterly to ensure you’re on track and your community is thriving.
We know that preparing a budget for your HOA can be overwhelming. However, there are plenty of ways to simplify it! Remember to give yourself time to do the work, have a team dedicated to putting a budget together, involve your community members when appropriate, and take it one step at a time.
A properly planned budget can help grow your community by increasing property value and resident satisfaction if done well. While it can be time-consuming, creating budget guidelines will help your community move in the right direction and set the processes for when you have to do it again next year!
By budgeting carefully, you can anticipate and plan for expected and unexpected expenses and ensure financial stability for your HOA.
If you’re looking to streamline your budgeting processes, need guidance, or are having trouble with follow-through, it may be time to consider an HOA management company. If that time comes, we are happy to help!
Are you preparing your financials for your HOA community budget? Consider hiring a professional HOA management company like AMC Inc. (Association Management Concepts). We’ll work with you to identify your community’s financial goals, even if you’re a self-managed association. Contact us at 916-565-8080 ext. 321.
