HOA Budgeting 101 - 6 Pro Tips and Practices
Budgeting is an integral part of the HOAs management world. From landscaping, lawn care to pool treatment services, they all require prior planning and allocation of resources. Being the Board of Directors (BoDs), they ensure that these budgets are achievable and healthy for the community. When homeowners associations start increasing their residents' dues to cover other expenses brought by poor budgeting skills, there might be a lack of faith. Additionally, bankruptcy can be a massive downfall for an association.
To rescue you from all this stress, worry and still become a pro in matters relating to budgets, here are six best tips and practices on budgeting related to HOAs:
- Be Conservative & Strategic
Managing HOA is a tremendous undertaking. For example, pavements may need repairs; the streetlights might also be begging for replacement; coupled with unpredictable economic times, it can be challenging to plan effectively. In such circumstances, taking the conservative route is more advisable. While undertaking projects in the community, ensure you're as conservative as possible. Try and fit all the project expenses with the current economy and reduce unnecessary spending. This approach can save the HOA money to cater to other needs.
Furthermore, consider plans that are 3-5 years old. This makes you strategically account for the upcoming big projects while creating enough time for Request for Proposal (RFPs).
- Prioritize the Community
Having the fiduciary duty requires you to know how to prioritize the community depending on what's most needed now. Consulting the association's members before undertaking any significant projects can save you a ton from the repercussions that may unfold if otherwise - and also sheds light on what they consider a priority themselves.
Moreover, the governing document is a vital thing to inquire from during budgeting. It doesn't only direct what's lawful to/not do, but you also know the assessment dues charged to each homeowner. This makes it perfect for accounting for all the amount that is budgeted for.
- Review Your Reserve Fund
In some states and HOAs, it is mandatory to have reserve fund analysis. Why is this crucial? It ensures that all the members contribute and that the HOA won't go bankrupt while sustaining itself. Reviewing also helps to ensure that some funds are retained, which would later kick in during unforeseen circumstances. While it may seem like a lot of work, neglecting such essential duties may spark high dues and charges, which no resident will want to hear any it.
- Consult the Past & Focus on the Future
While focusing on the future is essential, have you thought of going through the past financial statements? The previous statements help you quickly notice occasions where there was over/under spending, when and why it all happened. By having these crucial details, you're fit to make a clear judgment and take the most suitable solutions from the point of know-how.
Therefore, past budgetary reviews come in handy for in-depth research on future expenses, which will primarily guarantee you that your budget won't fall short.
- Analyzing Every Expense
Analysis of expenses helps in making future projections. For example, comparing the costs incurred three years ago will help you have a clear image of what is in store for you in the coming few years.
- Keep Delinquencies in Mind
Delinquencies are the dues and assessments that have not been paid. Unfortunately, not all homeowners will pay their duties religiously, or if they do, they might do it late. So you'll always have a few defaulters from time to time. Having this in mind, you can budget for the dues paid on a timely basis while the unpaid dues are allocated to other future projects. This is to prevent some of the ongoing maintenance, if there is, from stalling.