A homeowners association makes the big decisions for your condo or living space. These big decisions include a budget, which encompasses how your association will decide which areas of your property require financial spending. Creating a budget is a complex project; at Thayer Associates, we’d like to make the process easier.
What is an HOA Budget?
A homeowners association budget consists of a financial plan that includes estimated revenue and expenses. Your association should have a treasurer who is responsible for drafting it. However, anyone who is a part of the HOA board can volunteer their time to help out with drafting a budget.
This budget will help you map out exactly what your plan is for the year.
Look at Previous Budgets
Your starting point, when creating a new budget, should be reviewing past financial statements of the year before. Experts suggest looking over budgets from the previous three years. Create an itemized spreadsheet through Google Sheets or Excel to compare the expenses you had budgeted for versus the expenses you paid.
You’ll be able to determine your HOA’s financial health, how much money was spent on certain items, what unexpected costs came up, and ways to anticipate prices for the following year. Through this data, you can hypothesize whether you underspent or overspent on certain factors.
It’s important to keep track of five points during this process
- Renewal dates for existing contracts
- Upcoming costs with existing contractors
- Bids from competing vendors
- Insurance policies and updated vendor insurance information
- Utility companies’ price rate schedule
Make A Business Plan
The treasurer should implement a budget committee where homeowners are selected to give input and dedicate time to planning a sufficient budget. These members should be financially savvy and have an idea of what goes into a budget. This business plan should address the needs of all homeowners and the long-term and short-term priorities.
The financial plan should be split into three categories:
- Administrative Expenses which include accounting and legal fees
- Operating Expenses which include common area maintenance and supplies and utilities
- Fixed Costs which include federal income taxes, property taxes, and insurance
Dedicate Time for Budget Meetings
When your HOA is making time for board meetings, the budget committee should also be volunteering their time to budget meetings. These specific meetups should not come before or after general board meetings. It’s suggested to plan out one specific day where each person on that committee can spend a lot of time going over the budget.
Evaluate Maintenance and Utility Expenses
In an HOA budget, there should be a priority for maintenance, improvement projects, and utility expenses. Maintenance projects include landscaping, inspections, pest control, appliance maintenance, and more. Utility costs include heat, water, gas, and electricity, and often range from $120 to $450 a month, specifically in the Boston area.
With a budget priority on maintenance and utility expenses, you are first addressing the needs of the homeowners within your property.
Focus On Boosting Reserve Fund
A reserve fund is a savings account or liquid asset set aside by the HOA for any future costs and financial obligations. For condo associations, these funds come in handy with bigger maintenance or renovation projects. This is your lifeboat, so be cautious about when you decide to use this sort of funding.
Make sure there is a sufficient amount of money in the reserve fund, in case it is needed in the future. One way to boost revenue is by examining your current HOA income, and determining whether there will be an increase in HOA fees for homeowners to pay. Do you have enough money to put towards the reserve fund? Do you want to raise HOA prices? It all depends on your actual budget and certain expenses.
Dedicating time and effort to create an HOA budget will help keep homeowners happy without breaking the bank.