Proactive HOA Budgeting

Every year, the HOA board must approve an annual budget for the association. And, sometimes, because of too many busy weeks and complex personal schedules, the board may feel like they’re just going through the motions to complete the budget without taking the time to really think and evaluate how the money can best be used to benefit the association.

 

To break the routine, we’re going to cover some tips to help you refresh next year’s budget, including ideas for your budget creation schedule, your budget content, and saving money.

Keeping Budget Creation Ahead of Schedule

Following this timeline should help you finish your budget early, even if the unexpected happens.

  • Begin gathering needed documentation, such as balance sheets, invoices, income statements, and bank statements, in May.
  • Finish the first draft of the annual budget by the end of July, especially if a financial committee is assigned to draft it, so that the board may alter it as needed and so that it may be thoroughly reviewed for accuracy and effectiveness.
  • Approve the annual budget by the first week of October.
  • Distribute the approved annual budget to homeowners preferably before Thanksgiving, but at least before December.

A detailed and organized annual budget that’s promptly completed and distributed to homeowners will help prevent questions and complaints about assessment amounts. You’re essentially providing answers and explanations before assessment bills go out and before the homeowners have questions.

What to Include in the HOA’s Annual Budget

Your HOA probably uses last year’s annual budget to determine what the HOA needs to budget for in the coming year. This is a good starting point! However, to ensure all the HOA’s bases are covered, the board should also consider and discuss the following categories:

  • Upcoming repairs or replacements
  • Upticks in pricing for utilities, insurance, and vendor services
  • The amount currently in the reserve fund
  • The amount of unpaid/delinquent assessments
  • Capital improvement projects

If your association has not had a reserve study done in the past 3-5 years, conducting one will provide the board with a much clearer picture of when repairs are due and whether the association should be sending more money than it currently is to its reserve fund.

Reviewing utility bills, insurance policies, and vendor invoices will allow the board to determine if prices have gone up or down and adjust services, adjust the budget, or change service providers as necessary.

If the HOA has had a good number of delinquent accounts in the current year, the HOA should be prepared to manage with the same amount of missing funds for the next year while creating a strategic plan to help homeowners pay back the missing balances and get the HOA back on track. Expect the worst, but plan for the best!

And, lastly, if the HOA desires to complete any capital improvement projects in the coming year, the board should get cost estimates for the project so that it can be budgeted appropriately.

Tips for Wise Spending

If the HOA finds that it does not have the funds to cover the coming year’s maintenance, or if the HOA is looking to save money for a future capital improvement project, here are some tips to help your association spend wisely:

  • Plant hardy vegetation that requires little watering in common areas
  • Install LED lights in clubhouses
  • Host HOA meetings in the community or at free venues, such as libraries
  • Host cook-offs and potlucks, provide light snacks at events or request food donations from restaurants instead of paying for full meals
  • Perform consistent and preventative maintenance for community property
  • Send emails and PDF attachments instead of print letters whenever possible

 

A proactively created budget is about more than simply balancing revenue with expenses. It’s about paving the path to a bright future for your HOA where the reserves are well funded and the amenities are well cared for. The legacy you’ll create today with careful planning will be one that all future board members and residents will benefit from. If you are looking for help managing your HOA community, contact Spectrum Association Management today and see what makes us one of the top-rated HOA management companies in Texas and Arizona.
Now that you have more details on how the HOA Budget works, it’s time to take a free webinar on how to be the best HOA Board Member you can be. Click here.