It’s hard enough to manage personal financials, with medical expenses, home and car insurance, mortgages, etc. So, how should you, as a board member, best tackle the finances of an entire HOA, especially when your term on the Board is comparatively short compared to the financial history of the HOA you’re in charge of managing? Luckily, you don’t have to do it alone!
Here, we’ll go over a basic plan for creating, initializing, and monitoring a new HOA budget, as well as provide some tips for staying cost-efficient.
Initial Budget Research
If you’re planning to create a new budget for your HOA, you first need to see where the it stands financially. This means collecting all the information you have about past and current HOA expenses and profits: bank accounts, assessment payments, vendor invoices, insurance policies, employee wages, event costs, clubhouse electricity, pool expenses, and the like. Be very precise when figuring out how much each service costs; don’t leave out any purchases (not even the paper plates for the pool party!) or guess costs if you can find the exact amount. When you round monetary amounts, always round up.
If you discover that certain costs dip and spike over the years, see if you can figure out what’s causing these abnormalities. It could be something as simple as the AC usage during a particularly hot summer causing the unusually high electric bill. Or, the mysterious cost could be trickier to determine, like a leaky sprinkler causing water bills to skyrocket. Noticing these eccentricities will help you plan for and avoid these costs in the future.
Creating a New Budget
After you’ve determined how much money the HOA has, how much is received (on average), and how much is spent, you can create a plan to spend less and save more.
First, prioritize necessities over wants, as you would for a personal budget. Out of the board’s needs, first list everything legally required, such as employer’s insurance and employee wages, annual meeting notices, and the like. Then, list other necessities, like pool cleanings, gate maintenance, and common area landscaping.
While creating budget plans, don’t forgot to put money away for emergencies such as weather disasters, thefts, and damaged HOA property. A part of each year’s profits should be put away for such purposes; this way, you won’t have to surprise homeowners with special assessments
Once you’ve set aside the items that are absolute necessities, tackle the wants. These are items that would be great to have, but could be done without in a pinch, such as a summer pool party DJ or Yard of the Month gift cards. Out of these items, determine which are most liked or beneficial to homeowners. You might discover that several wants can be discarded right off the bat! But, if you have trouble figuring out what should be kept, you can always survey your homeowners to see what they think.
Monitoring the New Budget
No matter how carefully you planned the new HOA budget, there’s bound to be a hitch or two – an oversight, or an unforeseen dilemma. That’s why it’s good not only to follow the budget you’ve created, but to track how well it’s working. Do the expenses add up as you thought they would? Did you earn as much money this year from assessments as you predicted? Review costs and earnings regularly, such as at every quarterly board meeting, to ensure that everything goes according to plan.
More Money-Saving Tips:
- Meet at free venues. If you have the choice between meeting at a country club for a fee or at a library for free, take the library. Hold HOA parties/events in the HOA (Block party! Movie in the park!).
- Reduce resource waste wherever possible. Do you turn off the clubhouse’s AC when it’s not in use? Keep the blinds/curtains closed to keep the heat out during the summer? Have you tried energy-efficient lightbulbs or automatic taps for bathroom sinks? Going green can also save you green!
- Prepare for upcoming expenses/projects. If your board is thinking about replacing the HOA fencing along the main road in the coming years, start putting money aside now. Even if you don’t know precisely when a big project will take place, saving today will ensure you’re prepared if and when the project begins.
- Make money-saving substitutions. Instead of the HOA providing food for all members at a community picnic, host a potluck or cook-off. Your homeowners will be happy to show off their culinary skills and you could even offer prizes to winning dishes—the cost of a couple gift cards will be a lot less expensive than paying for everyone’s meal! You can also send homeowners digital copies of board meeting agendas (rather than paying for ink and paper).
Keeping an entire association in the black, and gaining green, can be a trying responsibility. If you have any questions about HOA expenses, or would like to tighten your association’s budget, don’t hesitate to contact us at Spectrum Association Management!