Mentioning the word “budget” to HOA board members is likely to make the hair stand on end. However, as grueling as these financial discussions can be, taking the time now to establish a first quarter budget for your HOA community is crucial.
While there are several moving parts to creating an HOA budget, here are several simple steps that HOA board members should take to make the task go as smoothly as possible:
- Gather financial information.
When it comes to creating an accurate quarterly budget for your HOA community, knowledge is power. The first step HOA board members need to take is to compile month-end financial statements to serve as the basis for your budget. In addition to these historical financial statements, be sure to review the current reserve study, current financial statements, and projected income statement. This information will allow you to estimate your operating expenses for the quarter and take into account any major upcoming expenses for the community.
- Plan for expenses with radically changing rates.
Common expenses for your HOA community include water, sewer, garbage, natural gas, electricity, and landscaping. However, a few of these expenses, such as utility and insurance, can vary from quarter to quarter. Anticipating large swings in expenses will help you to create an accurate operating budget for the quarter.
- Follow Florida HOA law.
HOA board members need to be well-versed in Florida Statutes Chapter 720, which dictates how Florida HOA communities must operate. These laws specify when budgets need to be made available, which disclosures need to be distributed, and the required items that make up the budget package. A CPA that is well-versed in Florida HOA law can provide valuable insight for creating a first-quarter budget that is in compliance with the state’s laws.
- Anticipate problems.
While budgeting can help to prevent financial hardship for your Florida HOA, you also face the risk of encountering an isolated event that can drive up expenses tremendously.
When your HOA encounters one of these unexpected events, it can choose to handle the large expense by assessing residents or dipping into the reserve account. Being knowledgeable about Florida HOA laws and your community’s financial history will help your board to determine the best course of action for covering the unanticipated expenditures.
As a best practice, regular communication with residents through meetings and letters will help to make any significant changes to the HOA budget go over smoothly.
As you can see, there are a lot of components that go into creating a budget for your HOA community. We have more than 25 years of experience with managing HOA communities in Florida and can prevent your community from getting tangled up in HOA law. Contact us at Vesta Property Services to learn more about how we can help your budgeting process go smoothly.