Homeowners’ associations (HOAs) establish an annual budget composed of their revenue, expenses, reserve funds, and contributions for a particular period. HOAs can make a budget committee to let community members voice their opinions regarding how the money is spent. Often, an HOA manager works with the board when preparing to draft a budget. If your HOA does not have a manager, click here to find the most dependable ones.
Why Your HOA Should Set a Budget
The budget of your HOA allows you to plan for the expenses of the coming year. This lets you manage the expenditure of the association carefully. Expenses include utility, maintenance, management fees, and insurance. In addition, the association budget helps the HOA maintain a reserve fund that can be used for replacement and repair costs. Also, a budget allows the association to determine homeowners’ dues, its main source of income. Without anticipated expenses, the HOA board would not know how much to charge residents in dues.
How to Plan the HOA Budget Properly
Your association’s annual budget is a significant management tool. The process of preparing for this budget offers an opportunity to make more analysis, do some planning, as well as review the goals and priorities of the HOA. Below are some steps to help your board prepare for this budget:
- Have a business plan in place. When planning for an HOA budget, objectives must be laid out first. These objectives include what you want the HOA to achieve next year. This process can be made easier by breaking down the yearly goals of the association by month.
- Review past budgets. Past projects should be reviewed and compared to the actual expenses of the HOA. This will let you identify trends. For example, the board may find out that the actual maintenance costs of the HOA are always higher than the projections. This allows the board to make more accurate projects for maintenance costs for the current year.
- Review financial statements. Your HOA’s income statement and balance sheet show the current financial health of your association. They must be analyzed to determine if adjustments must be made to this year’s budget.
- Send requests for proposals. When planning for the annual budget of your HOA, projections must be made. However, it’s better to have accurate numbers on hand. This can be done by examining current vendor contracts and determining the ones that are expiring soon. Then, the board must send up proposal requests early, so they will know possible charges for vendor services.