10 Tips for Preparing Budgets for HOAs and Condos
Budgeting is vital to the success of your homeowners' association (HOA) and can prevent your community from facing financial troubles. Here are some tips to ensure that your community association is proactive, prepared, and adequately plans for the future.
1. Create a Task Force
By dedicating a subset of your board to developing your HOA budget, you can speed the process up and work more effectively. Your task force should include the board president, treasurer, community manager, and finance and budget committee heads. It's also wise to enlist the help of a financial consultant or accountant.
2. Survey Community Homeowners
Before your budget planning session, survey your homeowners to determine what changes are most important to the community and what things they may want to keep the same. While you don't have to do everything the homeowners wish, it's essential to get their input to determine priorities.
3. Schedule Budget Planning Session(s)
Set aside ample time for a meeting (or several meetings) where your task force can focus solely on the budget. The HOA budget is vital to your community's financial success, so you shouldn't rush through it or allow distractions.
4. Know Your HOA Finances
It's impossible to plot a course for the future without assessing your current financial situation. It's essential to know how much money your HOA has in its various accounts and review and analyze your records over the past two years. You'll also want to review past budgets and compare budgeted expenses with actual costs. Note areas where you haven't allocated enough in the past or paid too much so you can avoid those situations in the future.
5. Plan Community Goals
Determine what goals you want your HOA to achieve over the next three to five years and what needs to be accomplished during the coming year to ensure you meet those goals.
6. Prioritize Projects
List any repair and maintenance projects that your HOA wants to accomplish, and then prioritize that list based on things you need to do versus something you'd like to do. Prioritize tasks that ensure residents' safety over beautification efforts.
7. Make Phone Calls
Once you have your list, call vendors, and get estimates of how much it will cost to get your various projects done. While these aren't exact figures, they may help you determine which projects you can address in this year's budget, and ones will have to wait. Also, call the people you regularly work with for things like landscaping and maintenance to see if they are planning on raising prices or if you can lock in a rate.
8. Prepare for the Unexpected
Leave some wiggle room in your budget for unexpected expenses. Some homeowners may not pay their dues. The economy could take a hit, causing vendor prices to rise. While your reserve fund can help with unanticipated expenses such as a natural disaster, you don't want to deplete those funds to make up for budgeting oversights.
9. Save, Save, Save
Set at least 20% of your HOA's income aside to go into your reserve fund or savings account every year. To ensure that your reserve fund is healthy, update your reserve study annually to know how much money you need to allocate to the reserve in your budget. Remember, many states have specific laws around reserve studies, so make sure whatever you do complies with your state regulations.
10. Create A Budget
Once you've taken all these factors into account, it's time to create your budget. List all anticipated costs, including the estimates you've gathered, and remember it's better to overestimate than underestimate. Your HOA budget should include income, administrative fees, utilities, contracts and services costs, insurance, and the portion for your reserve.
Contact Us
Your community manager is here to help assist you when it comes to building a financial plan that works best for your community. Contact Condominium Associate's today to learn more about the importance of preparing budgets for your HOA community.
