HOA Budget Planning: A Guide To Doing It Right

The annual budget is a cornerstone of every homeowners association. Yet, HOA budget planning is a task many HOA boards find daunting because it takes a lot of work. Simplify the process by following a few easy steps.

HOA Budget Planning the Right Way

Budget season is fast approaching. You can streamline this process by planning ahead and involving the community association. Usually, your manager will work with the treasurer to prepare a draft budget.

Another idea is to create a Budget Committee, which comprises members of the community association, enabling residents to voice their opinions on how their money is spent. This not only spreads the work-load but promotes greater understanding by residents and acceptance of the fees and necessary increases.

The annual budget is an important management tool and the budget preparation process provides an opportunity for additional analysis to be made, planning to be done, and a review of the association’s goals and priorities. Some of the steps that are part of budget preparation are:

1. Make a Business Plan

business plan | prepare hoa budgetWhen you plan HOA budgets, the first thing you should do is to lay out your objectives. What is it that your association hopes to achieve in the upcoming year? Break down your annual goals by month to make the process easier.

2. Send Requests for Proposals

HOA budget planning involves a lot of projections, but it is much better to get accurate numbers. To do this, take a look at your current vendor contracts and see which ones are up for renewal.

Send out requests for proposals (RFPs) early to see how much vendors intend to charge you for their services.

3. Evaluate Maintenance and Utility Costs

Your budget should also include projected maintenance and utility expenses. This includes water, electricity, gas, and the like. Check the previous year’s actual maintenance and utility costs to gauge your expenses for the coming year.

4. Account for the Reserves

Your reserve fund is there to cover future replacements and repairs. Therefore, it should always stay at an optimal level. Analyze your reserve fund by conducting a study and make sure to allocate a portion of the budget for the reserves. This way, you can cover future capital expenses.

5. Compute

hand indicate spreadsheet on the screen with pen | prepare hoa budgetAfter gathering information and getting all the numbers, it is time to plug them all in. Use a budgeting software or a simple Excel spreadsheet.

Compute your total projected expenses and compare the total against the revenue you expect to receive from sources other than HOA dues. From there, you can calculate how much to charge each homeowner for their assessments.

6. Inform Homeowners

Homeowners have a right to know where their money is going. Therefore, your HOA board must share the approved budget with community members to keep them in the loop. Practicing transparency also helps build trust between the homeowners and the HOA board.

Bonus Tips on How to Prepare HOA Budgets

  • Consider any ‘projects’ that have been discussed during the year but were not planned for the current year, for inclusion in HOA budget planning for the coming year: e.g. landscape upgrades, new benches or signs, etc.
  • When preparing the draft budget, the preparer will:
    • Use year-to-date totals and project the actual totals through the end of the year.
    • Compare the annualized totals with the budgeted amount for the current year as well as the previous year’s actual totals to identify trends.
    • Investigate any numbers that vary significantly from the budgeted amount to find the reason for the variance and budget accordingly.
    • Check with vendors to find out what the expected increases will be in their contracts (grounds, pool, management, termite contract, insurance, utilities, etc.).
    • Check the legal documents to find out what rules apply to increases in assessments. It is fiscally responsible to increase the assessment annually to keep pace with inflation.
    • Include notes to explain the changes in line items where relevant.
    • Check the reserve study to ensure that budgeted reserve funding is following the recommendation as per the reserve study (long-range planning).
    • Include reserve expenses as scheduled per the reserve study.
    • Include recommended categories in your proposed budget, such as an association website, Board Education (CAI), a reserve study, or an update to the study.
    • Look for an HOA budget template online to serve as a guide.

Additional HOA Budget Guidelines

The goal is always to develop a balanced budget. If the expenses outweigh the revenue, consider ways to lower expenses without sacrificing the quality of service. If that fails to achieve a balanced budget, the only alternative is to raise assessments or charge a special assessment. Keep in mind that the association is a Not-For-Profit entity, so your goal is effectively to have a zero income at year-end.

Responsible financial planning is an important fiduciary obligation of the board. The association’s legal documents stipulate the deadlines for assessment approval, budget adoption, and homeowner notification. Failure to properly notify homeowners of the new assessment could lead to disputes and non-payment of assessments.

Advance HOA budget planning and preparation will ensure that the process goes smoothly:

1) Establish a clear timeline – as per the governing documents:

Assessment must be set by (date)______________________ Ref:___________________

Assessment notice must be sent by: (date)________________ Ref:__________________

Budget must be approved by: (date)____________________ Ref:___________________

Budget to be provided to homeowners by (date)____________ Ref:_________________

Mailed___ Posted on web___ Presented At annual meeting_____

Budget ratification meeting required: yes___ no___ Ref: ____________________

2) Prioritize by allocating adequate time on the meeting agenda for the budget discussion.

3) Contact the manager in advance of the meeting if there are questions about the proposed budget. This way, all pertinent information can be researched and will be available during the budget discussion to enable a timely decision.

Budget Planning Is a Serious Undertaking

HOA budget planning is a critical part of managing a community. It takes a good amount of time to gather information and make computations, so make sure to start planning well ahead of time. Aside from acting as a guide for the coming year’s expenses, the budget lets the board know how much to charge residents in assessments. Take it seriously.




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