Is your HOA budget working for you? Some associations fail to create a budget. Others omit important line items. If you find yourself revamping the budget throughout the year, you need a better plan. Below are line items that your budget should include:
Utilities: Costs continue to increase for water, power, gas and other utilities. Sometimes, there is an early announcement about a price increase. If no information is available, we recommend increasing the utilities line item in your budget by 5% annually.
Vendor Services: Condo and homeowner associations usually have many service providers. Budget season is ideal for reviewing contracts. Most of the time, rates will go up if vendors are contractually able to increase their fees or when a contract is expiring. Negotiate rates and services for your annual budget. This is also a good time to ask for updated insurance information from each vendor.
Insurance Premiums and Deductibles: Most associations include their annual insurance premiums. Sometimes, we find associations haven’t thought about how they will cover their deductible in the event of a claim (or claims). If disaster strikes, you’ll want to be prepared instead of facing a special assessment. Take advantage of an insurance review to ensure that you have adequate coverage at the best price.
Reserves: Every HOA should fund reserves for long-term maintenance and replacement. If you don’t have reserves or haven’t fully funded them, start now! Saving even a small percentage can build your reserves over time. Not budgeting reserves puts your community on a downward spiral to nowhere.
Project Costs: Recognize that you can’t afford everything at once, so prioritizing projects is mandatory. Your Board needs to distinguish between needs vs. wants for the association. Safety takes priority, with repairs following a close second. Routine maintenance is also vital. Prioritize and fund projects. Taking care of things today will save you money and headaches in the future.
Assessments: Evaluate your incoming assessments. It’s challenging at best to balance a budget, but it’s almost impossible to achieve balance with a high percentage of delinquents. Implement a strong collection policy so that you can count on your incoming cash. If you have a tight cash flow, raise assessments. Special assessments are for emergencies—not day-to-day expenses.
Evaluate History: Review the past couple of years to understand special expenses. This can also help you pinpoint line items that were out of line with the budget. Take corrective actions to achieve a balanced budget.
Managing an association is part of your fiduciary responsibility. “Review and adjust” will keep you on the track toward balanced budget so that your community can thrive.
Wise Property Solutions is a property management company serving East Tennessee with offices in Knoxville, TN and the Tri-Cities, TN. Specializing in Condominium Association Management, Home Owners Association Management, HOA Management and Gated Community Association Management. The firm is East Tennessee’s only Accredited Association Management Company (AAMC®).