A financially healthy homeowner’s association begins with a healthy budget.
To put together a practical and realistic budget, it is crucial to avoid many of the common mistakes other HOAs make. A lot of it comes down to remembering past issues and anticipating future expenses.
Here are nine pitfalls to avoid when putting together your next annual budget.
What was last year like?
Costs change over time. Every new budget should take into consideration the previous year’s expenses. By looking at your last financial reports, a board is better positioned to predict future costs.
This is also an opportunity to improve your budget process and eliminate past mistakes or oversights.
Many boards neglect to include a buffer within their budgets. Reasons range from wanting to keep costs down for members’ sake to simple economics. Either way, it can be a risky practice.
Always cushion your budget with a little more than what you need. This way, you have funds on hand for surprise expenses and won’t have to turn to special assessments to cover the unexpected costs.
It always looks better to end the year with a surplus rather than a deficit as a bonus.
Lumping services or other expenses under one category instead of itemizing them separately can lead to confusion or mistakes when budgeting for many items all at once. Better to take the extra time to budget services and expenses individually, so there are no surprises later.
Your HOA board must take into account all of the association’s outstanding debts. Check the current and previous years’ budgets for any outstanding balances or unpaid invoices and make sure those are included in your new budget. Then, when it comes to covering an old bill (or past the time), you won’t be left with an unplanned deficit.
Associations rely on homeowner dues, fees, and assessments. When members fall behind and become delinquent, your source of income takes a hit.
Include a little extra in your budget to cover the costs of missing fees and other monies owed to the HOA until you can get them collected. If things get bad, offer payment plan arrangements or consider working with a collection agency to help get things current.
Don’t be afraid to ask about deals or discounts when contracting with new vendors. Even consider changing vendors if it means keeping costs down without sacrificing quality. Similarly, when it comes time to renew a contract, look for ways you could renegotiate past deals in ways that can save your HOA money.
HOAs rely on reserve funds to help cover future major repairs, replacements, and maintenance. Therefore, setting money aside for these funds is crucial so future boards can take on the financial burdens when the appropriate time comes and not be caught short.
There’s more to the world than the HOA. There is a whole community and world out there having their own effects on the economy. As an HOA board member responsible for the budget, it’s essential to be current on the latest economic conditions. This will affect materials, labor, and other costs associated with maintaining the HOA and may even be a factor in determining how capable residents will be in handling fees and other expenditures.
Insurance claims can be costly. Having proper coverage in place makes dealing with expensive claims more bearable and will save your HOA money.
While the hope is not to have to deal with any claims, it’s better to be prepared than not. When preparing your HOA budget, review your current policies and determine whether you need to update your plans or change insurance providers.
An HOA’s budget acts as an important tool for determining homeowner dues and association expenses. In planning your budget, avoiding common mistakes can make your bottom line stronger and your budget more effectively.
If your board needs assistance in preparing the annual budget, Henderson Association Management can help. Give us a call today or contact us online for more information on how we can help.