An HOA budget is vital to the success of a community. However, planning this budget can be hard. The board must organize the association’s finances to cover all community expenses such as capital improvement projects and maintenance costs. A proper HOA budget can help increase the value of properties in a community and ensure the residents’ well-being. If your board needs help with budget planning and management, click here.
Planning an HOA budget takes time and effort. However, it can be done. To start with the process, here are important considerations:
The Long-Term Goals of the Community
You should not crunch the numbers without having a long-term community plan. While you are preparing for the HOA budget for the year, you must look ahead. Consider what the board plans for your community in the next few years. This will help you determine your HOA’s direction and the needs of the community in the upcoming years.
It is a great idea to have a business plan that includes short- and long-term goals. This makes it easier to prepare an HOA budget and educate the board about the financial practices that must be implemented to meet such goals.
Current Financial Situation
The boat should assess the current financial situation of the HOA to plan for an annual budget. A well-maintained association means there is plenty of data to examine. This data includes reserve studies, business plans, and monthly financial statements.
Old statements should be reviewed to know the way the budget was structured and implemented. Did the HOA stick to the budget or have to spend more than anticipated? Consider the factors that resulted in underbudgeting. This will the board scrutinize the current budget and look for areas of possible improvement.
The HOA board must calculate the coming year’s expected income. Can the income from fines and homeowners’ assessments cover all HOA expenses? When planning an annual budget for the HOA, ensure there is a stable cash flow. Also, the board must be able to collect dues.
If surplus income is expected, more projects can be added to the budget. Another option is to allocate more funds to the reserve fund. However, if the budget is tight, the board must find areas to cut costs.
In addition, HOAs must pay attention to their operating fund balance. This must be around the same as a month’s maintenance costs. To meet such a standard, the board should explore options such as increasing HOA fees, taking out bank loans, or considering special assessments. It’s just important not to dip into the association’s reserves for operating expenses to avoid headaches in the future.