HOA Budgeting

HOA Budgeting Best Practices

HOA Budgeting Best Practices

The fiscal year is coming to a close for HOAs and community associations. Thus, HOA budgeting season is in swing. Some HOA boards may find it enjoyable to freshen up the data each year, but the majority find it to be rather stressful.

This article will discuss financial habits that every board should practice, a step-by-step budgeting process to ensure that funds are allocated effectively, and when hiring a property management business to help with the process makes sense.

Four Best HOA Budgeting Practices

These financial habits are great for every HOA or community board, regardless of your budget, the size of your area, or where you live.

#1: Reserve Funds

The best advice is occasionally the most basic. This is the situation. Make sure the board doesn’t overextend its resources and find itself in trouble. How? Don’t blow your entire budget.

Keeping money in reserve gives room for unforeseen events. HOA fees should account for all of these factors, which include the size of your community, the types of units on the property, and the services you provide. The precise amount varies widely based on these factors.

#2: Financial Reporting

It has never been simpler to maintain accurate documentation of board actions. Make sure the HOA board treasurer maintains thorough records of all financial transactions and extensive notes. While the budgeting and finances remain transparent, intelligible, and intact, detailed reporting makes it simple to rotate board members and bring in new ones.

#3: Auditing

You should always be ready when dealing with the IRS. You could be surprised by an audit when you least expect it. Make sure you’re prepared in case they ring your doorbell (knock on wood).

#4: Insurance

Every year, check your board’s insurance policy to make sure you have the protection you require. Always take precautions to protect the board and the area in case the worst happens.

HOA Budgeting: Step-by-Step

If the budgeting procedure for your HOA board is unclear or excessively complicated, start by simplifying it into four straightforward stages.

Create. To construct a preliminary draft, use the budget from past years—or, if your board is new, from similar communities. Usually, the HOA board treasurer is in charge of this duty.

Review. The board should gather together when the draft is finished to debate the budget, make any necessary adjustments, and approve the draft.

Prioritize. What are the priorities of the board? The board will determine what is reasonable for the fiscal year. Prioritize what needs to be done now above what can wait until later in the future.

Research. It is now time to conduct real-time price research once priorities have been established and the budget draft has been approved. Although the budget draft may provide pricing estimates, nothing is finalized before the board obtains quotes for the services and projects.

Hire. When your research is finished and the board gives its approval, it’s time to sign contracts with suppliers and other contractors.

Reserve. Finally, you’ll have some unspent money in your annual budget because you’ve undoubtedly been adhering to the first best practice outlined above. It’s time to allocate those funds to the following:

  • Deduct. In case of need, set aside a percentage of your reserves to cover insurance deductibles.
  • Legal. Reserve the remaining funds for any future legal costs.

Responsible budgeting is the first step to financial success.

Every HOA must prepare its budget. You must work as a team and take into account all potential elements when creating an HOA budget. You run the danger of becoming bankrupt if you don’t create a budget. A poor budget strategy may result in incorrectly estimated HOA dues, which may subsequently trigger special assessments or the depletion of reserves. Repairs and upkeep suffer from a lack of funds. You will soon see declining property values and dissatisfied homeowners.

Planning a budget is essential to an HOA’s performance, but it does not end there. Additionally, you will need to make sure that you adhere to the budget all year long.

Part of successful HOA management, financial reporting, and budgeting is using great community association software. Schedule a demo with our team and see how Smartwebs can help you manage your communities smarter.