Planning and maintaining your HOA budget is a complicated and important process. As a board member, you’re personally and legally responsible for what happens to the association’s funds. That means you not only have to document and report every cent that goes in or out, but also you’re responsible for planning how and where those funds are spent.
Budgeting for all your association’s needs can feel overwhelming, but being proactive and following a few simple rules will make keeping up your community pool and other amenities easy.
Step 1: Start With Research
Managing your HOA’s budget is a major undertaking, something you can’t dive into blindly. Your first priority should be doing the proper research on your community, the amenities, and any contractors you plan to employ.
First, research associations of similar size and function. Find out any information you can on how they manage, who they contract for work, etc. Then, assess your own community assets and amenities, including regular maintenance, common repairs, and any other expenses you can anticipate.
Third, fully vet all contractors you’re considering working with. Check their credentials and references, and consider the current state of any other HOAs they’ve done work for.
Step 2: Build a Strong Strategy
Smart budgeting starts with looking ahead. When you plan your association’s one-year budget, you should also be planning your three-year and five-year budget. The more you think ahead, the better prepared you’ll be for any unexpected circumstances. Continually assess the state of your community amenities, including their lifespan and any regularly scheduled maintenance required.
As much as possible, be conservative with your spending. There will always be repairs that are needed and inspections required by governing authorities, but part of careful planning is deciding when these fit in the budget, and when they can be postponed. Any repairs that affect the safety of your community or risk violation of local ordinances take priority, while cosmetic repairs or community requests for add-ons can be held off.
Step 3: Put Your Community First
It’s easy to get wrapped up in the politics of running an HOA. But one of the best cardinal rules you can set for yourself is to always put the needs of your community first. Often, you can assess what’s best based on general understanding of your residents and the state of the neighborhood. But involving your community, to a degree, in the planning process can be helpful as well. Large, expensive projects should be discussed with your association members and should, ultimately, benefit them.
Additionally, it’s imperative that you keep all personal and special interests clear of the budgeting and decision-making process.
Step 4: Consider Your Reserve Fund
We’ve written a lot on the importance of your HOA’s reserve fund. While building and planning for that fund is a major factor of HOA governance all on its own, it of course has a massive impact on your overall budget planning and goals. Having an adequate reserve fund is crucial to a well-managed community. When planning your HOA budget you should keep your reserve fund in mind, whether that means avoiding having to borrow from it, properly adding to it, etc. The health of your reserve fund contributes to the health of your budget.
Step 5: Don’t Ignore Delinquencies
When running an HOA, you tend to want to focus on the positives and create harmony amongst your community. While these are not wrong to aspire to, you also have to acknowledge the unfortunate negatives that come with being part of an association. Members fall behind on dues. It’s a reality of managing an association, and part of creating and maintaining a successful budget is acknowledging those unrealized funds.
Step 6: Study the Past to Plan for the Future
When creating your association’s budget, you should always be looking ahead—and behind. Use past annual budgets, incomes, and expenses to plan for the coming year. Consult records of maintenance costs and other expenditures to budget for ongoing repairs. Also, consider your HOA’s future. What will the neighborhood look like in five years? What expenses will you need to account for as properties and amenities age?
Planning an annual budget for your homeowners association isn’t an easy task. Many factors come into play, and a lot of people are counting on you. Using an HOA management company to help handle this responsibility can take a load off your shoulders.
Looking for more advice or help with your annual HOA budget? Read more of our articles or contact us to learn how we can help!