Fall is the time of the year when many HOAs shift their focus to the next year and begin working on the annual budget. A solid budget helps track progress, plan for growth and make adjustments throughout the year. Unfortunately, many people shy away from working with numbers, so creating a budget sometimes falls to one or two Board members. But, you can develop a better budget in less time when all Board members contribute. Here are some steps to make creating your annual budget a little easier.
Know the history – It’s good to review the HOA financial statements for at least the last two years to get an accurate picture of where you are vs. where you want to be. Budgeting is rarely an exact science because there are usually unforeseen situations. Knowing the history helps you understand the adjustments needed to the budget and/or assessment fees to keep your association in a solid financial position.
Evaluate maintenance and projects – It’s important to include the correct amount for monthly services, seasonal maintenance and special projects. Because you need to budget for changing rates, identify all vendor contracts that are due for renewal. Take advantage of this contact to ask for updated insurance information. Assess and prioritize your list of major projects for the association, so you can also include these in your budget.
Budget for reserve fund – Your plan should include funding your reserves. The percentage of revenue that you put in reserve depends on the long-term liabilities and obligations identified in your reserve study. Adequately funded reserves can’t eliminate special assessments, but it decreases the likelihood that special assessments will be needed.
Assess general and administrative costs – This is a good time to review insurance premiums and deductibles to ensure that they are in the budget correctly. Utility rates often increase, so you may need to evaluate this area. Other costs that you may need to review for budgeting are legal, collections and other professional services required for your association.
Creating and maintaining a condo or homeowner association budget is part of your fiduciary responsibility in keeping your community financially stable. Avoid deviating from the budget as much as possible throughout the year. Good financial practices will help your community grow and prosper today and in the future.
Wise Property Solutions is East Tennessee’s only Accredited Association Management Company (AAMC®). As the region’s leader in community association management, the firm is committed to the industry’s best practices and continuing professional development. Wise Property Solutions’ certified and highly trained property managers empower well-organized and efficient communities. The firm maintains offices in both Knoxville and the Tri-Cities.