Creating an annual budget is one of the most critical responsibilities of a homeowner's association (HOA) board. A well-prepared budget ensures your community runs smoothly, maintenance is prioritized, and funds are available for future needs. While the process may seem overwhelming, following a structured approach can make it manageable. Here are seven essential steps to guide your community association through budget season.
1. Start Early and Review Governing Documents
Your association’s governing documents hold vital information about the budget process, such as who is responsible for preparing the budget, when it must be completed, approval requirements, and any limits on assessment increases. Start early to allow time for revisions, votes, and member input. Procrastination can lead to rushed decisions and mistakes that could impact your community’s financial health.
2. Take Advantage of Experts
Don’t go it alone. Your community manager can provide insight related to industry trends, data specific to your association, and assistance with budget preparation. Additionally, CPAs and attorneys are invaluable resources for answering tax-related questions or ensuring compliance with legal requirements. Remember, even the most skilled manager may not be an expert in every area, so tapping into specialized knowledge can save time and prevent costly errors.
3. Review Financial History
Historical data is often your best forecasting tool. Analyze past income and expenses to identify trends and anticipate future costs. Look for recurring expenses, seasonal fluctuations, and any anomalies or special projects that could affect the upcoming year. This step helps create a realistic and sustainable budget rather than relying on guesswork.
4. Consider Your Reserve Account
Your reserve account is your safety net for major repairs and replacements. If it’s been more than three years since your last reserve study, it’s time for an update. Experts recommend revisiting it every 3–5 years. Work with a reserve specialist to determine how much should be allocated annually. This proactive approach helps avoid special assessments or sudden increases in dues.
5. Look Over Contracts
Service contracts can eat up a significant portion of your HOA’s budget. Review all current agreements to plan ahead for any contract end dates and ensure you’re receiving the services you need at the best possible price. Compare bids from multiple vendors if necessary. If costs seem high, consider renegotiating terms or confirming you’re paying fair market rates.
6. Talk to Your Insurance Provider
Insurance premiums can rise unexpectedly, so reach out to your provider early in the budgeting process. Ask about anticipated rate changes and explore ways to reduce costs, such as increasing deductibles or bundling policies. A little planning now can help prevent financial surprises later.
7. Share the Budget with Owners and Accept Feedback
Transparency builds trust. Homeowners have the right to know where their money is going, so communicate the proposed budget clearly and invite feedback. Use multiple channels such as emails, newsletters, community websites, or town hall meetings to ensure everyone stays informed and engaged. Build a budget that considers the overall community, which may include allocation for costs beyond basic operating expenses (e.g., social events).
Remember Your Fiduciary Duty
As trustees for the association, the board is charged with prioritizing the association’s needs, which means the budget should provide adequately for proactive maintenance and repairs to be made and funding to be set aside for future needs. The assessment amount should reflect the realistic income required for a responsible operating budget, not be driven by an individual's desire to keep the number as low as possible.
Conclusion
Budget planning doesn’t have to be daunting. By starting early, leveraging expert advice, and maintaining open communication, your association can create a budget that meets your community’s needs today and prepares for tomorrow. A well-structured budget isn’t just about numbers; it’s about protecting property values and fostering a thriving neighborhood.
At CAMS, we take budget preparation seriously. That’s why we hold an annual “Budget Bonanza” where our teams come together to begin working on budgets. During this event, community managers and the accounting teams gather to help each other with budgets, ask and answer questions, and provide support.
About Community Association Management Services
In business since 1991, CAMS has grown to become North and South Carolina’s premier community management company. With experienced local managers in each of its nine regions, CAMS provides innovative solutions to the community associations it serves. To learn more, visit www.camsmgt.com/choose-cams.
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