HOA Budget Planning: How To Do It The Right Way

Your HOA budget can determine the financial success of your association for the year. As such, your board must prepare your annual budget with careful consideration. Unfortunately, not everyone knows where exactly to begin when creating a budget.

What Is an HOA Budget?

Homeowners associations operate in a similar way to small towns or cities. They require funds to maintain their common areas and provide services to their residents. These funds come from homeowner dues. However, without a blueprint, an HOA can’t calculate its dues and financial needs.

This is where a homeowners association budget comes in. Simply put, an HOA budget is an estimate of an association’s expenses and revenues over a set period of time. Typically, associations prepare budgets on an annual basis, but some associations do it monthly or quarterly.

How to Plan Your HOA Annual Budget

A budget plays a critical role in an HOA community. The HOA board is responsible for planning this budget, but not all board members know how to do so. Here is a helpful guide to preparing an HOA budget.

1. Put Together a Team

The board is primarily responsible for HOA financial planning, including budget preparation. But even the board can use a little help, especially if its members aren’t well-versed in financial management. 

As such, it’s a good idea to assemble a team of key board members, such as the president and the treasurer. This team should also include the community manager as well as members of the finance committee. In some communities, a separate budget committee shoulders the burden of budget planning.

2. Plan Ahead

A key component of successfully planning an HOA operating budget is time. You should allow yourself enough time to create your annual budget. Planning ahead allows you to make important calls and examine market trends. It also helps you develop a skeletal budget before the actual planning session.

3. Set an HOA Budget Meeting

Regarding planning sessions, scheduling a budget meeting with your team is important. This ensures that everyone is present during the actual budget planning. Setting aside time for this specific task helps you prepare for it in advance, work toward a set goal, and devise a workable plan by the end of the meeting.

4. Lay Down Your Objectives

Establishing your objectives will help you prioritize your projects and expenses. Talk about your HOA's goals within the next few years. This will allow you to lay down the right foundation for future plans.

Your budget planning team may also want to seek input from homeowners. This will help build trust between the board and the members of your community. Of course, while it’s important to listen to their suggestions, you don’t have to follow them if they don’t align with the association's best interests.

5. Assess Current Financial Health

6. Anticipate Expenses

HOA Budget Best Practices

• Learn to Prioritize. Regarding expense planning, it’s all about knowing how to prioritize. You may want to go all out and indulge in lavish expenses, but unless you’re certain owners can handle the costs, it’s best to focus on the important items. Prioritize the urgent projects and expenses. And, if there is room left in the budget, you can make adjustments as necessary.

• Consider Economic Factors. Budgeting isn’t strictly an internal process. External factors that affect the economy will also impact HOAs. Things like inflation, the cost of materials, and wages will likely cause fluctuations in your budget. If these factors are expected to spike, then you should also anticipate an increase in expenses.

• Contact Vendors. Far too many HOA boards make the mistake of assuming vendor fees without confirmation. To get a better estimate, contact your vendors and contractors directly. Ask them if they expect any changes in prices and fee structures. This will help you adjust your budget for the year.

• Gauge Insurance Premiums. Insurance is a must for HOAs, but premiums can swing and make a dent in your funds. Many communities are already complaining about rising insurance costs in Florida alone. A competent board should also factor in the cost of insurance in the budget.

• Don’t Forget Your Reserves. Properly funded reserves ensure well-maintained common areas. In Florida, condominium associations must fund reserves, so make sure to include it in the budget.

A Secure Financial Plan