Preparing an HOA budget is not most boards’ favorite task. While it is essential to do it properly, budgeting can be a difficult exercise. It requires a significant amount of time and effort. Especially if you don’t apply principles that can simplify the process.
A proper budget helps you keep your spending on track and help you avoid high HOA fees or special assessments.
Read on to discover effective yet simple ways to prepare a successful HOA budget.
1. Make sure you are compliant
This first tip may seem a bit obvious but it is a very important one. State statutes and governing documents are here to help you create a consistent and accurate budget. They usually provide clear instructions on how to proceed. They also clearly explain what you are not allowed to do. Checking these guidelines each year before the budget season is a good way to ensure compliance. There are many risks of non-compliance. One of them is to face a lawsuit. Another one is not having enough money to pay for operating expenses.
2. Review vendors contract and ask about increases
Before starting your budget, you should review your current vendors’ contracts. Look at the fees and compare that amount with the industry average. That way, you will know if you are paying a fair price and if you need to negotiate with your current vendors. You should also contact them and ask if there will be an increase next year. Inflation has risen worldwide including in the US. This means prices have increased. So you need to take that into account
Making informed estimates is crucial when you prepare your HOA budget. You should not just guess or invent amounts. This needs to be as close as possible to reality.
Maintaining a close relationship with your vendors, and talking to them before you start budgeting will help you allocate your finances accurately.
3. Carefully evaluate your maintenance and repairs
A lot of HOAs have difficulty properly allocating money for their maintenance and repairs. Here are a few reasons why:
- It is usually the most expensive part of an HOA budget
- The HOA board underestimates maintenance expenses
- The board applies reactive maintenance instead of preventive maintenance
Like we said, discussing rates and fees with your vendors will help you make better estimates.
If your community doesn’t have reserves, then your maintenance and expenses budget must be high. If you do have them, conducting an HOA reserve study will help you predict future costs.
Something else you should consider is doing an HOA inspection a few times a year. By doing so, you can spot areas that need maintenance or repairs and can include them in your budget.
Preventive HOA maintenance consists of performing regular checks and repairs before an issue becomes bigger. This maintenance style positions you for financial stability and greater predictability.
4. Get your HOA budget done on time
The process of preparing an HOA budget can be overwhelming which is why some HOAs tend to leave it to the last minute. This is not the best way to proceed. Your HOA budget for the next year should be ready by November at the latest. When you start planning your finances early, it gives you more time to deeply think about the impact your decisions will have. It also allows for more time for different stakeholders to give their input. It is the HOA treasurer’s responsibility to oversee the budget preparation process. The rest of the board and homeowners will also give opinions. External stakeholders such as an accountant or a property manager can also give recommendations.
Preventive HOA maintenance consists of performing regular checks and repairs before an issue becomes bigger. This maintenance style positions you for financial stability and greater predictability.
5. Have a clear picture of your association’s finances
To create a successful HOA budget, you need to evaluate past and present financials. This is like your guiding compass for future financial decisions. Unfortunately, many HOAs don’t have a clear and easy-to-access vision of their spending and income. Without that, it will be very difficult to create a good estimate for your new budget. You need to learn from your successes and failures so that you can take informed actions.
Tracking your expenses and income thoroughly is not an easy task. This is why many communities use online tools to help them. Some use spreadsheets. This is a good solution but it can easily get messy and confusing.
The ideal solution is to use HOA accounting software such as Quickbooks. These online platforms can tackle HOAs’ specific accounting challenges.
For example, you can generate financial reports and balance sheets instantly. This gives you an overview of your HOA’s financial state in a matter of seconds.
Final points
As you could see, there are many aspects to take into consideration when planning your expense and income for the new year. The worst thing an HOA can do is duplicate last year’s budget and only update the numbers. Budgeting is a forecasting process that involves a lot of different aspects such as new laws, regulations, internal/external events, and more. So make sure you take into consideration every perspective.
Using online tools will also help you simplify the budgeting process. They can automate tedious tasks and give you greater control over your finances. Click below to learn more about HOA finance.
