8 Steps for HOA Budgeting
Late Summer is a good time to start the Budgeting Process to avoid “crunch time” in October and November when traditionally budgets must be approved and distributed to owners.
Follow these eight steps to prepare a well-thought-out and realistic budget for the next year:
FIRST, prepare a Business Plan for the community. This should be a list of all the goals you can think of that the community wants to accomplish in the coming year. Where possible, put this in outline form by month so that, if there is a cost involved, you'll know the month in which it should be included in the budget. Then review the plan with the board at the late summer meeting to reach approval of the plan. This should be your first step in getting the community budget together.
SECOND, prepare and send out requests for proposal (RFP’s) for next year’s recurring contract services. These should include:
THIRD, assess the maintenance needs of the community. To do this, look back at the actual expenses incurred so far for maintenance and repair items. You should also look at what utility expenses have been running from month-to-month. I would also assess the condition of the community and take into account the projects the community officers wanted to accomplish based upon their approved “business plan” above.
FOURTH, next look at the Reserve Fund contributions. The community’s reserve fund analysis should be updated every 2 – 3 years to make sure they are contributing enough to cover the forecasted expense for replacing or renovating the major components that are the responsibility of the community, like parking lot paving, playground equipment replacement, pool, roofs, etc. Are they contributing enough this year? Is it time to update the reserve fund analysis again as part of the upcoming new year’s budget? The reserve fund contribution is part of the assessment levels paid by the homeowners, so this should be taken into consideration before the assessment levels can be determined for the next year.
FIFTH, using an Excel spreadsheet or other Budgeting tool, begin plugging in the known numbers after getting back the RFP’s or determining the estimated maintenance, repair and utility expenses for the new budget year. I always liked keeping notes explaining my budget assumptions for each year.
SIXTH, once the total budgeted expenses are known, begin working on the income section of the budget. Be sure to take into consideration the Late Fee Income and any other reliable source of income to back into the total amount needed to be covered by homeowner assessments. Since community associations use zero-based budgeting, I would NOT recommend including any left-over money in the bank from previous years when calculating the budgeted owner assessment amounts, unless it is grossly over. It is always more prudent to keep “just in case” operating funds in the bank from previous years and not use them to lower the next year’s homeowner assessments. This can help prevent the need for special assessments later on.
SEVENTH, to make it easier for the community officers to Review and Approve the proposed budget, give points of comparison, so put together a Budget Comparison cover sheet with 3 columns that compare the proposed budget for the upcoming year to the current year’s budget. The third column should be the annualized income/expense projection from the current year as another point of comparison. Behind these reports, include the monthly spreadsheet of the proposed budget just so the community officers have all the details. Bring the contractor proposals to the budget meeting so you have backup for a lot of their major expenses. The community officers may wish to award the contracts during the budget review meeting to kill two birds at the same time.
EIGHTH, the final step is to distribute the approved budget to homeowners. Generally, this must be done with first class postage mailing. But under some community legal documents and some states, you might be able to email the budget to owners who have “opted-in” to receive emails from the community.
Please contact me for a Free Consultation. I have over 30 years of Senior Financial Leadership and would enjoy the opportunity to be of assistance!
Late Summer is a good time to start the Budgeting Process to avoid “crunch time” in October and November when traditionally budgets must be approved and distributed to owners.
Follow these eight steps to prepare a well-thought-out and realistic budget for the next year:
FIRST, prepare a Business Plan for the community. This should be a list of all the goals you can think of that the community wants to accomplish in the coming year. Where possible, put this in outline form by month so that, if there is a cost involved, you'll know the month in which it should be included in the budget. Then review the plan with the board at the late summer meeting to reach approval of the plan. This should be your first step in getting the community budget together.
SECOND, prepare and send out requests for proposal (RFP’s) for next year’s recurring contract services. These should include:
- Lawn and Landscaping
- Pool Management
- Trash Removal
- Insurance Policies
- Annual Audit and Tax Return Preparation
- Any other recurring contract services
THIRD, assess the maintenance needs of the community. To do this, look back at the actual expenses incurred so far for maintenance and repair items. You should also look at what utility expenses have been running from month-to-month. I would also assess the condition of the community and take into account the projects the community officers wanted to accomplish based upon their approved “business plan” above.
FOURTH, next look at the Reserve Fund contributions. The community’s reserve fund analysis should be updated every 2 – 3 years to make sure they are contributing enough to cover the forecasted expense for replacing or renovating the major components that are the responsibility of the community, like parking lot paving, playground equipment replacement, pool, roofs, etc. Are they contributing enough this year? Is it time to update the reserve fund analysis again as part of the upcoming new year’s budget? The reserve fund contribution is part of the assessment levels paid by the homeowners, so this should be taken into consideration before the assessment levels can be determined for the next year.
FIFTH, using an Excel spreadsheet or other Budgeting tool, begin plugging in the known numbers after getting back the RFP’s or determining the estimated maintenance, repair and utility expenses for the new budget year. I always liked keeping notes explaining my budget assumptions for each year.
SIXTH, once the total budgeted expenses are known, begin working on the income section of the budget. Be sure to take into consideration the Late Fee Income and any other reliable source of income to back into the total amount needed to be covered by homeowner assessments. Since community associations use zero-based budgeting, I would NOT recommend including any left-over money in the bank from previous years when calculating the budgeted owner assessment amounts, unless it is grossly over. It is always more prudent to keep “just in case” operating funds in the bank from previous years and not use them to lower the next year’s homeowner assessments. This can help prevent the need for special assessments later on.
SEVENTH, to make it easier for the community officers to Review and Approve the proposed budget, give points of comparison, so put together a Budget Comparison cover sheet with 3 columns that compare the proposed budget for the upcoming year to the current year’s budget. The third column should be the annualized income/expense projection from the current year as another point of comparison. Behind these reports, include the monthly spreadsheet of the proposed budget just so the community officers have all the details. Bring the contractor proposals to the budget meeting so you have backup for a lot of their major expenses. The community officers may wish to award the contracts during the budget review meeting to kill two birds at the same time.
EIGHTH, the final step is to distribute the approved budget to homeowners. Generally, this must be done with first class postage mailing. But under some community legal documents and some states, you might be able to email the budget to owners who have “opted-in” to receive emails from the community.
Please contact me for a Free Consultation. I have over 30 years of Senior Financial Leadership and would enjoy the opportunity to be of assistance!