Working with your Management Company to Prepare the Annual Budget for the Year Ahead
Budgeting is often perceived as one of the most complicated facets of running an HOA.
Most individuals have a challenging time just balancing personal finances and their own checkbook. Thus, creating an annual budget for an entire Homeowners Association and maintaining it well can be daunting.
An HOA budget affects more than just the individual. Each and every residents’ financial contributions, for both the short and long term, are impacted by expenses of the HOA budget. Spending decisions are ultimately dictated by the Board.
To avoid these problems, organizing a well designed annual budget is key.
It’s also a legal requirement by Florida law.
‘The association shall prepare an annual budget that sets out the annual operating expenses. The budget must reflect the estimated revenues and expenses for that year and the estimated surplus or deficit as of the end of the current year. The budget must set out separately all fees or charges paid for by the association for recreational amenities, whether owned by the association, the developer, or another person. The association shall provide each member with a copy of the annual budget or a written notice that a copy of the budget is available upon request at no charge to the member.’
Similarly, running an HOA is a liability which requires active participation of trustworthy and accountable Board members.
‘The officers and directors of an HOA or Condominium Association have a fiduciary relationship to the members who are served by the association.’
In this way, it is not only legally necessary to operate with an appropriate budget, it is also required that the Board is made up of upstanding members who will make ethical decisions and allocate funds with the best interest of all of the residents as in mind.
An HOA is like a small business or Non-Profit organization
Planning and managing the annual budget for your Condominium or Homeowners Association is no different than operating the finances of a business or Non-Profit organization. Inasmuch, it is paramount to plan accordingly, take the appropriate steps, and execute effectively.
There are various types of funds and accounts.
There are various ways to disperse funds.
There are various costs and taxes.
There are various ideas about how to effectively run your organization.
Essentially, there are a variety of different ways to properly and appropriately budget for an HOA.
Choosing a property management company who has the tools and experience to achieve your financial goals is important. Ensure that your property management and accounting teams will facilitate completing projects and allocating funds effectively, while also advising you of laws, taxes, regulations, and so forth.
What you need to know about compiling an annual budget for your HOA property
Here we outline basic steps of how to compile an annual budget for an HOA. This guide is meant to serve as a general guideline. While this annual budget guide can support your HOA budgeting process, keep in mind that this is only meant to explain and simplify the budgeting procedure.
It is our hope to share our 30+ years of property management HOA budgeting experience to guide your annual budgeting needs. However, this information is neither exhaustive, nor specific to the particulars of your HOA.
Our expert budgeting and accounting teams are available to support your HOA annual budgeting needs. This process is included as part of our financial management services, along with the physical and administrative management services we provide.
During financial planning sessions our team will take the specifics and particulars of your HOA into account. Your HOA should also take legal requirements into consideration such as:
- City and state laws
- Governing statutes
- Local and federal taxations
By thoroughly identifying the various financial responsibilities applicable to Condominium Associations and HOA’s you begin to ensure there will be no surprises cost. Plus, it is a good idea to plan for surprise costs anyway. Our experience shows, surprises happen and it is better to be prepared!
We can facilitate your annual budgeting to help develop a plan for a successful future. Your Condominium Association will achieve balanced bank accounts, grow funds, and complete large scale/long term projects that require practical budgeting.
HOA Annual Budget – Step by Step guide
Assemble a team. Your Board members may be well equipped, further, your property management company will provide accounting and budgeting services in the financial management services they provide. Similarly, your property manager will have experience in financial management and often can facilitate the framework of a budget for your HOA.
Once you have a budgeting team, conduct your budget meeting. This meeting should be separate from (and in addition to) regular Board meetings. The purpose of these meetings is to dedicate time specifically towards allocation of financial resources. This means planning, resolving issues, and preparing for future expenses. These meetings may include property managers, accountants, Board members or those residents who have the skill set to serve your HOA budget needs.
The next step is to define your HOA’s financial goals. Decide what tasks and projects are worthy of funding, especially those that serve the long term benefit of all residents.
With overall objectives in mind, it’s time to assess what is most important and get to work. Some HOA’s decide fixing issues is most important (financial or otherwise!) Some HOA’s prefer to start new projects. Your budgeting team, paired with a resident vote is usually a good way to decide on the priorities for your property.
When the list of priority projects is complete, it’s time to estimate costs. Whether through online research, or requesting quotes, it is important to get close-to-accurate figures to prepare a final budget that is within a reasonable estimate of actual costs.
Prepare for the Unexpected
Remember while prioritizing and estimating, that surprise costs, changes, and other emergencies occur. Decide how your HOA wants to handle unexpected costs. Who will incur the costs? Where will the finances to support unexpected expenses come from
Our experience in HOA and Condominium Association management suggests that reserve funds are an important feature of financial success. In order to properly prepare for unexpected costs (or inaccurate estimations, or any other ‘surprises’) special accounts can be established. We suggest creating separate, additional accounts to keep reserve funds available for the HOA to successfully complete projects. These funds act as a ‘just in case.’ This will also prevent constant ‘special assessments’ being assessed to residents.
- Create the budget- With the above considerations in mind, it is time to actually create the HOA budget. The budget should entail the following:
- Estimated income
- Administrative costs
- Utility costs
- Fees, taxes, insurances
- Reserve funds
Your budgeting team must orient towards absolving debt. HOA budgets must document and plan for eliminating existing debt. Special funds or accounts may be put in place to achieve this goal.
Resident costs and fees
Once the budget has been created and calculated it should be approved and reviewed by a professional property management team, or accountant. This budget will serve as a baseline cost for the entire neighborhoods’ proposed expenses for the year. You can take this completed calculation and divide it by the number of homeowners in the HOA to arrive at the final HOA fees per household.
Your budget team, Board, and residents, paired with your property manager can decide how to efficiently bill the homeowners. When collecting finances from individual homeowners, some HOA’s choose quarterly installments, while others opt for monthly billing cycles.
Responsible budgeting for your HOA
To avoid long term issues our financial property management experience suggests thoroughly reviewing and developing an annual budget that is balanced and allows for the unexpected.
By following the above guidelines and steps, your HOA will be well on its way to success and approved budgeting processes according to state, and local laws.
Our property managers and accountants are available to facilitate the annual budgeting process for your HOA, as well as serve to offer experience-based guidance. Call or click to learn more.