It goes without saying that an HOA budget is a fundamental piece for any board to oversee and manage. It acts as a guide to steer the board to its goals.
A budget can help you prepare for the coming year’s expenses such as:
- management fees
- And extra reserve funds for repairs
In addition, a HOA budget helps you appropriately determine homeowner dues and fees, which is a big piece of the financial puzzle for HOA’s.
While the importance of a budget cannot be denied, it can be difficult to figure out how to prepare for one. Here are a few suggestions that can help.
HOA Budget Planning the Right Way
Planning with goals and priorities in mind is the first step to making a sound budget. Try to focus on the five pillars of budgeting.
1. Make a Business Plan
Layout your objectives from the start. What does your association hope to achieve in the next year? Try to break down these goals in a month-to-month way to get a clearer picture.
2. Look at Past Budgets
Consider looking at past budgets and financial records to compare past financial performances. Can you identify trends that were successful? Can you identify ones that were not? It’s important to look at everything.
Doing this can help you find pockets of excess and opportunities where finances could have been used differently. For instance, you may discover that your actual maintenance costs always end up being higher than your projections. This means that there is a consistent pattern of not allocating enough of the budget towards maintenance. With this insight, you can make more accurate maintenance cost projections for this year.
3. Send Requests for Proposals
Consider looking at vendors whose contracts are up for renewal and send out requests for proposals to see a more accurate representation of what they intend on charging you. (Factors such as inflation could increase prices which is something you need to be prepared for.).
4. Account for the Reserves
An HOA best practice: create a reserve fund. This is so important for any HOA because you never know what could come up by way of future replacements and repairs.
To set up a proper reserve, analyze the current budget and see where you can save money for future capital expenses. A good general rule is to maintain at least a 70-percent funded reserve at all times.
As always, we are here to answer any questions that come up along the way.
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