Preparing an HOA budget may seem like a daunting process, but on top of some of Vesta’s Budget Basics, we have a few more tricks to make this time of year less stressful.
There are three basic components to consider before you create your budget:
- Funds needed for daily operation of the community.
- Things like electricity, grounds maintenance, insurance and water. These kinds of expenses are either contractual or can be easily estimated by looking at the expenses from previous years. It is also important to keep room in your budget that meets the expectations of the community. Do they want someone to just mow their lawns, or would they prefer a more expensive, higher level of service?
- Funds needed to maintain reserves.
- Reserve funds are important for repairs and replacements of capital assets, things like roofs, pools and pavement. It is a good idea to fund your reserve over time so you are not caught with an unexpected expense that you are unprepared for.
- Funds for additions and enhancements.
- Things that members of the community want and are willing to pay more for.
Now that you have the components for your budget, there are a few things you should do:
1. Calculate your anticipated income
If you want to know how much each homeowner will pay in assessment fees, you need to calculate all other sources of income. If you have a project you are planning for the upcoming year that might raise assessment fees considerably, it might be prudent to put off that project for next year and save the money for repairs instead.
2. Send out Requests for Proposals (RFP)
An accurate estimate on vendor fees is difficult to determine based on past costs alone, so it is prudent to send out RFPs to all of your contracted services such as pool maintenance, lawn care and trash removal to make sure your budget is as accurate as possible.
3. Share your budget with community members
Homeowners have an expectation and a right to know the details of what their assessment fees are being used for, so once you have your budget approved, you should distribute it to homeowners based on state guidelines. Cooperation, collaboration and transparency are all important factors in maintaining a successful and happy community.
Creating an accurate budget can be overwhelming, but as long as you prepare it over time rather than last minute and take it step by step it can be simplified. Involve your community members whenever it is appropriate, and you can avoid future problems for your HOA.