Members of the HOA board have to fulfill a fiduciary duty. Each member has both legal and ethical obligations to the HOA to use the funds of the community wisely. Thus, the board must create a yearly budget, account for a reserve fund and operational expenses, as well as make sure sufficient resources are available to maintain the values of properties.
Creating a yearly HOA budget can be complicated as it requires insight from the board and the HOA manager. The treasurer plays an important role here and gets insights from accountants and bookkeepers. You can learn more about creating a yearly HOA budget below:
HOA Budgeting, Sources of Income, and Costs
The majority of homeowners’ associations maintain operating and reserve budgets. The operation budget covers daily costs related to running an HOA while a reserve budget is used for emergency purposes or major capital expenses such as special projects like constructing a new community pool fence or replacing the clubhouses’ roofing.
A big part of the HOA’s income comes from dues paid by members every month or every year. The board must ensure members pay their dues promptly. In addition. The expenses of an HOA can include bookkeeping, legal fees, and vendor payments. Also, insurance is a primary concern, along with administrative costs.
How to Create a Viable HOA Budget
Below are guidelines and best practices for creating a budget for an HOA:
- Follow the right procedure. The HOA’s governing documents must be reviewed first to determine the allocation of budgeting duties. A subcommittee may need to be created to put the HOA budget together and present this to the Board or membership.
- Review historical data. Previous financial reports can be used to create a current budget for the HOA as they give a sense of the expected income, the costs to be incurred, and the financial health of the community. Budget decisions should be made based on this historical data.
- Review expenses. When reviewing HOA expenses including landscaping expenses, management fees, and others, the board treasurer must be brought on board. Going through previous expenses in detail allows the board to isolate areas for renegotiations or contain expenses.
- Handle delinquencies. When reviewing past-year financial statements, both the expenses and income should be paid attention to. If problems with delinquent payments exist, they must be addressed immediately. Delinquencies directly diminish the HOA’s bottom line and put its financial health at risk.
- Involve the HOA manager in budget meetings. The HOA manager can advise the board on regular audits and other steps to be taken to make sure the budget planning maintains compliance. The manager must be present at board meetings to discuss financial matters including financial management.