Money plays a key role in both our professional and personal lives. When people look at organizations from an outside perspective, usually only the most visible financial attributes can be seen, such as who the vendors are, the state of their landscaping, and what social activities are hosted. However, these factors are not a true indication of an HOA’s overall financial health.

The greatest indication of an HOA’s financial health is the organization’s budget, and the process of creating and implementing a solid budget that accurately reflects the expenses of the coming year is one of the most important things an HOA board can do. Thankfully, your management company is here to assist with all your financially-related questions in our series on HOA finances. Today, we’ll cover our top budgeting tips to complete your HOA’s budgeting process.

Let’s review SpectrumAM’s timeline associated with setting a budget for an HOA:

  • We begin gathering the documents we need to draft next year’s budget in May or June.
  • By the end of July, our community managers share the first draft of your community’s budget with their client relations manager for approval.
  • By October, your board should approve the budget for the coming year.
  • The budget should be mailed to homeowners and uploaded to the website no later than the very beginning of December.

One of the biggest advantages of having a management company is that we do all the heavy lifting for you! However, if you want to take a more hands-on approach, consider taking the following six steps:

  1. Gather all the necessary documents you need to assess your community’s current financial status. These documents include your association’s reserve study, financial history, and income statements from the past three to four years. Once you have all documents, you can proceed with the following steps.
  2. Organize a budgeting workshop. This workshop can be hosted by the board or run by a budget or finance committee. Either way, the purpose will be the same: to go through the proposed budget line-by-line to assess where the money will be going in the upcoming year.
  3. Keep a focused scope, with the sole goal of finishing your budget assessment before the next board meeting. Ideally, when it comes time to approve the budget for the following year, the entire process — from introduction to ratification — should take five minutes or less.
  4. Once your committee has made the necessary revisions, communicate the changes you’d like made with your community manager in advance of the next board meeting. Setting a budget for the coming year is one of the chief functions of an HOA. Giving your community manager as much notice as possible will ensure that you have a quality budget to approve at your board meeting. Since many HOAs only meet once per quarter, not being in a prime position to ratify a budget at a regular meeting may mean you will have to schedule an additional meeting to ratify the budget in time to communicate the changes to the community.
  5. Be proactive. Sorting out finances can feel a lot like climbing Mount Everest, and some boards fall into the trap of putting their budget on the back burner until, suddenly, it’s time to mail the billing and they don’t know if they need to raise assessments to meet all expenses for the coming year. This is not good practice, nor is it fair to homeowners. By breaking down the task into its smallest components, rapid progress can be achieved. A proactive approach to budgeting will enable your board to handle upcoming expenses without struggling unnecessarily or placing unexpected financial burden on homeowners.
  6. Understand that mailing your community a budget is considered best practice, even if your governing documents don’t require it. One of the reasons we at SpectrumAM push to have budgets prepared by October is in order to send budgets out with the billing for Quarter 1. Homeowners have a right to know where their money is going, and the added transparency builds trust between homeowners and their boards.

As we approach the end of the year, it’s important to ensure that next year’s budget is in order. Here at SpectrumAM, we’re committed to making your life as a board member as easy as possible, and we hope this article has shed light on the budgeting process and how boards can proactively navigate the entire process.