HOA Budget: A How To Guide

Step 1: Review Governing Documents

Review the DCC&Rs and Bylaws to verify the financial obligations and and policies the HOA Board has to the HOA. Also make sure you are aware of any Property Codes that will go into effect for next year. .

Step 2: Form a Budget Committee

Ask the any volunteers to form a Committee with the help of the Property Manager. Good members to include in the committee are board members and residents with financial back grounds who can take a removed approach the the budget.

Step 3: Assess Current Financial Health

Start by reviewing the current year’s budget vs. actual expenses as well as income statements and balance sheets. Evaluate if the current reserve fund is adequate for planned future projects.

Step 4: Gather Historical Data

Compare budgets over the past years to see if you can identify trends and recurring expenses such as maintenance, landscaping, utilities and other costs. Review contracts and their deadlines.

Step 5: Project Income

Look at your projected income (dues) for the next year but remember it is never a good idea to count on late fees as a revenue stream. If you are doing this then you need to reassess your income. Make sure to also include in other revenue streams such as rentals from common areas. 

Step 5: Project Expenses

After income is forecast for the following year, do the same with your expenses. Estimate, based on historical trends and the contracts, your operating expenses such as security, maintenance, utilities, management fees and insurance to name a few. Make sure to plan to leave a buffer for any large and unplanned expenses. Also plan to contribute to your reserve fund. 

Step 7: Prepare a Draft Budget

Based on step 4-6 the projected income and expenses create a draft budget. Make sure the budget has detailed line times for clarity to everyone involved. 

Step 8 Review and Adjust

After the committee has drafted a budget the next step is to present the draft budget to the board for review. This will give a chance for review of the budget. Review and adjust the project as many times as necessary to have a clear picture of your HOA.

Step 9: Solicit Member Input

Hold an open board meeting to present the draft budget to HOA members. This will present an opportunity for homeowner input and addressing concerns that the committee and HOA Board might not have realized. This also ensures full transparency to the community. 

Step 10: Finalize and Approve

Make the final changes if any are needed based on homeowner inputs. Next have the HOA Board vote and improve the budget for the next year. Make sure this is documented and made available to the entire HOA members.

Step 11: Communicate the Budget

Based on the governing documents and the HOA Board distribute the copies of the approved budget to all HOA member whether through mailing, email or a come and "pick up your copy" strategy. Make sure the budget included and explanation on key budget items and why any increase was necessary, if applicable. 

Step 12: Implement and Monitor

At the start of the next fiscal year implement the approved budget. As you should always do monitor the actual income and expenses against the budget.

Effective budget planning is important for the smooth operation and long-term financial health of any HOA by following a structured process that includes thorough assessment, input, engagement, and knowledge of what needs to be done. HOA boards can develop an accurate budget that meets the needs of the community by regular monitoring and periodic reviews ensure that the budget remains on track and can be adjusted as necessary. With careful planning you can foster financial stability and transparency, benefiting all community members.If you don't know how to do this find us at pmicrosstimbers.com and get a hold of us. We would be happy to help.