How to Plan Your Homeowners Association Yearly Budget - Article Banner

How To Plan Your Homeowners association yearly budget

What is your process for planning the annual budget at your HOA? 

If you serve on the board, you’re likely involved in the budgeting details. If you’re a board treasurer, you may find yourself leading the process. 

As an HOA management company, we work with California HOAs and community associations to put together budgets that make sense and help communities reach their goals. We’ve learned what works and doesn’t work during the budgeting process, and we want to share some of our tips with you. 

We know that budgets can often be a challenge. Even when you have every dollar carefully allocated, things happen and you can end up overspending in one area and not spending at all in another area. Or, you’ll be caught off guard by the rising costs of goods and services. Inflation is causing everything to cost more. Even if you budgeted for that, you likely did not budget enough. 

When it comes to budgeting for your HOA, the math can get tricky pretty quickly. 

It doesn’t have to be overcomplicated, however. Your HOA board needs to take a detailed and accurate look at where things stand currently and where you need and want to be a year out and even five years out. 

Building budgets is one of the things we do best, and we’re here to help your HOA community do it better.

Start with Evaluating Last Year’s Budget

You can learn a lot from your past budgets. How accurate were they? Did you manage to stay on track or were there places that you wildly under-budgeted or over-budgeted? 

Review your current and previous HOA budget. This is the best starting point to create a new budget. Pay close attention to the expenses and make adjustments for the new budget. It’s pretty common for things to cost more than expected, so this review should give you a good idea of what you’ll have to spend in the coming year. 

Don’t forget inflation. For example, you’re paying more for pest control than you did a year ago. You’ll likely pay even more in the coming year. 

Forecasts and HOA Budgets: What are You Planning?

How will you pay for the projects your community association will have in the next year or two? Have you already budgeted for these, or do you need to find the money now? Maybe your community has a clubhouse that needs new paint. Factor the cost of the paint and the labor into the budget. Maybe the lights need to be updated outside of the building or the parking area needs to be repaved. These are the forecasts you’ll have to make as you decide where to allocate funds in your budget. 

These projects will impact your community’s bottom line, so plan for as many of them as you can. Don’t forget to have a budget in place to take care of any emergency work or evacuations. 

Measure the expenses you’re forecasting against the projected income from fees, dues, assessments, and penalties. Do you have enough to cover what you want to do? If not, how will you make up the difference? You can dip into the reserves or charge a special assessment. You can take a loan. These are the questions you’ll have to resolve before you write something into the budget that isn’t exactly paid for yet. 

Review Your Existing and Anticipated Vendor Contracts

The budgeting process is a great time to evaluate the work your vendors are doing for you, and to explore other options if you feel you’re being charged too much or the quality of work is slipping. 

Send out RFPs for all your contracted services, including pool cleaning, lawn care and landscaping, trash removal, insurance, and even tax preparation, property management, and accounting services. 

These costs should be fixed in your budget. When you contract with pool cleaners or landscapers, you should be paying a specific service fee that does not vacillate. You don’t want your maintenance budget to fluctuate too wildly throughout the year otherwise it will be nearly impossible to budget. 

Take a look at the RFPs that come back. If there’s an opportunity to save money, explore it. Changing service providers can often seem risky, but HOA boards are the financial stewards of their communities. You need to make decisions that work for the homeowners you serve and their financial security. Do not overspend. 

Keep the Reserve Budget Funded

Conduct a thorough reserve fund analysis every time you work on an HOA budget. It’s a responsible part of the HOA board’s responsibilities to regularly update the analysis of reserve funds. 

A reserve fund analysis will help the board understand whether homeowners are contributing enough to cover expected expenses as well as surprise expenses that might come up. If a roof caves in and you’re not prepared financially, there’s going to be a lot of trouble when it’s time to replace that roof. If the COVID pandemic has taught communities anything, it’s that over-preparation is never a bad thing.

Get an expert opinion on your reserves and access the best data you can to tell you whether you have enough. If you’re investing those reserve funds, as many community associations do, you’ll want to conduct an analysis of what you’re earning or losing. Make any necessary adjustments to protect your reserves. 

Communicate Your Budget to Homeowners

Board Member

The budget needs to be reviewed by the board, communicated to the community, and voted on for approval. Once the budget is approved, distribute it to the homeowners by mail, on your website, through a newsletter, or whatever type of communication you typically and legally use. 

Transparency is important, especially when it comes to budgeting. Always be responsive to the community if there are questions, suggestions, or a need for clarity. 

If you need help with budgeting, leverage the experience of a team like ours. Contact us at Hill & Co. so we can tell you more about the HOA services we provide in California for HOA boards and community associations just like yours. We can deliver full-service management or virtual management if you’re looking for something more flexible and cost-effective.