An Accredited Association Management Company
An Accredited Association Management Company
An Accredited Association Management Company
An Accredited Association Management Company
October 3, 2022 Education
One of the primary responsibilities of every homeowner’s association (HOA) is to manage the finances responsibly and efficiently; this is not limited to collecting dues and fees from residents and then using that money to improve the community. What should be included in managing the finances but is often not because it can be less clear is providing residents with a good return on their investment. One way to ensure that finances are used wisely is for the Board to collaborate with the Community Management Company and create a budget; in turn, it will help the HOA association plan for future expenses and ensure funds are more targeted while limiting waste. Another way to ensure that money is being used effectively is to review the budget and regularly adjust as needed. This safeguards that the association is always making the best use of its resources and providing residents in the community with a good return on their investment.
Assembling a task force to prepare an HOA budget is a smart way to ensure that the budget is accurate and complete. The task force should include the Board president, treasurer, and community manager, finance and budget committee heads. Having a diverse team with different areas of expertise will help create a more comprehensive and accurate budget. In addition, by assembling a dedicated task force, HOAs can ensure that their budget is thorough and reflects the community's needs.
When it comes to budget planning, it is essential to take the time to establish the community’s long-term goals. What do you hope to achieve in the next 3-5 years? These goals will be the foundation of your budget and help guide your team as you make spending decisions. When setting these goals, it is essential to involve key personnel in the process and consider all opinions. You can create a budget that truly reflects the community's needs by considering your task force's wide range of voices. Once these goals have been established, you can begin to allocate funds accordingly.
One of the most critical aspects of budget preparation is understanding your organization's current financial standing. This means looking closely at your records from the last two years and looking for trends. Are there areas where you consistently spend more than you budget? Conversely, are there places where you could have saved money? Understanding these patterns will help you make better decisions about where to allocate funds in the future.
Additionally, it is helpful to review your previous year's budget and compare it with actual costs. This can give you a sense of whether you are overestimating or underestimating certain expenses. By evaluating your finances, you can ensure that your HOA budget is as accurate and effective as possible.
An HOA's reserve fund is integral to the budgeting process. A portion of dues must be set aside each year to plan for future repairs and replacements. By staying on top of your reserve fund and updating your reserve study every year, you can ensure that your HOA is prepared for whatever comes. This will also help you with your HOA reserves calculation, as you will know how much money needs to be set aside each year. Allocating funds for the reserve fund in the budget is a meaningful way to keep your HOA running smoothly and prepare for the future.
Repairs and replacements are a significant part of every HOA budget. A well-kept community is pleasing to the eyes and helps increase property values. When repairs or replacements are ignored, overall satisfaction within the community drops; prioritize repairs and replacements so that the essential items are taken care of first. In addition, be sure to keep open lines of communication with residents so that they are aware of what is being done and why. By handling repairs and replacements thoughtfully and efficiently, HOAs can ensure that their community remains a desirable place to live.
When preparing the budget for the upcoming year, the HOA Board should send out requests for proposals (RFPs) to potential vendors for items that need to be replaced or repaired. This will provide a few bids to choose from, and the committee will better understand costs. By comparison shopping, the Board can be sure to get the best deal or return on investment, possible on necessary repairs and replacements. Additionally, RFPs can help to bring new vendors to the attention of the HOA, which may provide additional benefits in terms of cost or service. As such, RFPs are an essential tool in budget planning for HOAs.
An HOA budget can be trimmed in the same ways you might cut costs in your home. Review and update as necessary to ensure that the association makes the best possible use of its resources. With that in mind, here are suggestions for ways to trim costs and keep fees from increasing:
By following these recommendations, HOAs can keep their budgets trim and their fees reasonable while still providing the services and amenities that residents need and expect.
While it is undoubtedly ideal for everyone in an HOA community to pay their monthly dues on time, the reality is that this does not always happen. There are several reasons someone might fall behind on their payments, from financial hardship to simply forgetting. Whatever the reason, HOAs need to have some wiggle room in their budget to account for late or missing payments. This way, they can avoid being caught in a bind if someone falls behind. Of course, it is always best to encourage timely payments from all community members, but having a cushion in the budget can help ensure that the HOA stays afloat even if someone doesn't pay their dues.
Now that you have analyzed all the factors in creating an HOA budget, you are ready to start listing all the anticipated costs. Make sure to include estimated figures for each item on the list, and remember that it is better to overestimate rather than underestimate. In general, an HOA budget should consist of the following items:
After arriving at a final annual budget, you’ll divide total expenses by the number of homeowners to calculate HOA fees. There are HOA budget templates or HOA budget samples you can access online. Budget Example.pdf
Final approval Once the committee agrees on the budget, it's time to take it to the Board and talk to homeowners. The committee may need to defend its budget against those Board members who take issue with a significant increase in dues and may have to adjust the budget if they cannot get everyone to agree. However, the committee should be prepared to explain why the increase is necessary and how it will benefit the community. Then, with careful planning and good communication, the committee can get the Board’s support with its budget and avoid significant disruptions to community life.
Grounded in over 30 years of experience, Crummack Huseby understands that master-planned communities (HOA’s) are unique and are not always covered by the basic services some HOA Management companies offer. We pride ourselves on friendly, consistent community presence onsite and offsite, helping you maintain the financial integrity of your largest asset. If you are interested in learning more or want a free assessment, fill out the form below to start the conversation.
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