Does Your HOA Have a Plan?
Mention developing a plan at an HOA Board meeting, and you’ll probably receive shocked looks. Typically, members say they have a plan or the Board doesn’t need anything as elaborate as a plan. The truth is that many Boards don’t have a documented plan to manage the association, and it’s a critical component of running a successful community. A plan documents financials, projects, and important steps in accomplishing your goals. In other words, it’s your roadmap to success.
Components of a comprehensive plan for a homeowner and condo associations are:
Budget – Operating expenses that include all administrative, maintenance and overhead should be budgeted year to year. Sometimes, it’s helpful to categorize these by weekly, monthly or seasonal expenses to have a better grasp on cash flow. The majority of revenue comes from assessment fees, and these should be included in the budget. Don’t forget the infrequent expenses that may not occur every year.
Reserve Study – Having a fund to pay for major projects is vital to maintaining the property in your community. A study helps your HOA Board to identify future projects such as exterior painting, roof replacement, etc. A third-party professional usually prepares a reserve study.
Management Plan – An association management plan identifies critical projects, functions and dates for the year as determined by contract renewals. Important dates mandated by your governing documents should also be included in your plan. Proactively planning for events reduces the potential of being blindsided with a large expenditure.
Be realistic as you create your plan. For example, if your association typically has 5% in arrears, account for that in your budget. Nor should you count on negotiating lower contractor prices. The best plans include realistic budgets and accounting forecasts that focus on both short-term and long-term needs and goals for the homeowner association.
Keep your plan simple, but make sure you include all the components. Make it short because you want your Board members to use it as a reference document throughout the year. There’s nothing more important to your association’s success than a well-thought out plan with accurate projections and solid budgeting.