With budget season here, it’s time for community associations to review and adjust the budget for the coming year. This task can seem overwhelming to many HOAs, but these tips can help make it as straightforward and painless as possible.
Review the Previous Year’s Budget
When creating a budget for next year, always start with the previous years’ budgets. Look back at the financial records for the previous two years to determine how you did then. Were your monthly dues enough to pay for everything you needed?
Were your dues too high, giving you more money than you needed? Checking old financial records is the best way to help you determine what you’re doing wrong or right.
Remember That Costs Increase
Even if your previous financial records were perfect, you still have more work to do. You can’t just use the same budget as the previous year because certain costs are always on the rise. This is particularly the case for utilities. Check with your utility provider to see if there is a price rate schedule. If they don’t have one, use the previous financial information to determine the increase rate and adjust your budget accordingly. Check with your other vendors to determine if they are going to increase their rates for the coming year also.
Don’t Neglect Your Reserves
The reserves are how you pay for big, uncommon or unexpected projects, and you want to be able to put a little bit of money in there each time you collect dues. There is no exact number for how much you should put in. It varies from community to community and is based on your long term liabilities and obligations. For example, if you have a lot of shared buildings, you’ll need to put up more for major renovations like roof repair than a community that has no shared buildings.
Communities always have projects, so determine which ones you anticipate in the coming year. You’ll also want to determine if you are going to pull money out of the reserve to pay for the project, if you’ll need to have a special assessment or if you need to raise dues. Once you have a list of expected projects, prioritize them. Put the projects you need done the most at the top of the list (such as repairing hazards), and leave the less-important things you want at the end of the list (such as landscaping).
Creating a new yearly budget is one of the most important things an HOA can do. It is the only way to ensure you have enough money to pay for everything your community needs.