For many homeowners' associations (HOAs), creating a realistic and effective budget is crucial to maintaining a community's financial health and ensuring residents receive the services they expect. Crafting an HOA budget, especially for new board members may seem daunting, but with careful planning, it can be a streamlined process. At Red Rock Management, we do most of the heavy lifting by providing a draft budget to our board members. However, if you're a self-managed board or simply looking for resources, Red Rock is here to help guide you through the intricacies of creating an effective HOA budget.
1. Understand Your Community’s Needs
Evaluate Previous Budgets: Look into past financial statements and budgets. Understand where the money was spent and if there were any surpluses or deficits. We recommend referencing a detailed profit and loss statement (sometimes referred to as a budget vs actuals). This will help you see where spending is currently against your budget.
Survey Residents: Consider getting feedback from the community about what they believe are essential services or areas that need improvement.
2. Setting Assessment Income
Regular Assessments: Estimate the income from monthly or yearly HOA fees. Ensure fees cover regular expenses and any expected increases.
Increases: It's a best practice for us at Red Rock to include a sample in your budget with an increase. This will help you see if it's beneficial to raise dues or keep them at their current rate.
3. Calculating Fixed Expenses
Utility Bills: Include water, electricity, gas, and other utilities for common areas.
Insurance: HOA insurance, property insurance, and liability coverage.
Projecting: If you're unsure we recommend adding a 3-5% on your new budget.
4. Variable Expenses
Maintenance and Repairs: Regular upkeep of common areas, unexpected repairs, and capital improvements.
Landscaping: Routine care, seasonal plants, and tree trimming.
Amenities: Pool maintenance, gym equipment updates, and other amenity-related expenses.
Events and Activities: Budget for community events, newsletters, and social activities.
Projecting: If you're unsure of next years fee, we recommend adding a 5-7% on your new budget.
5. Establish a Reserve Fund
It’s essential to set aside funds for long-term repairs, unexpected events, or major community improvements. A reserve study can be used to predict when big-ticket items will need repair or replacement and how much they will cost. We also recommend setting aside at least 10% as many lenders look for this when writing new home purchases.
6. Plan for the Unexpected
Emergencies happen. Having a contingency fund in your budget can save a lot of stress and prevent special assessments.
7. Review and Adjust
Regularly Review: Financial needs and situations change. It's crucial to revisit the budget periodically to make adjustments to your spending.
Seek Expert Advice: If you're unsure about certain aspects, consider consulting with professionals, like your community manager at Red Rock Management, to guide you through the budgeting process.
8. Present and Get Approval
Once the draft budget is ready, present it to all board members. Ensure everyone understands and agrees with the allocations. Once approved, communicate the budget to the community. Transparency builds trust.
9. Monitor and Report
Regularly compare actual expenditures and income to the budgeted amounts. This will help you identify areas where spending might be higher or lower than expected, allowing you to make timely adjustments.
Creating an HOA budget requires thought, planning, and consideration of the community's needs. However, it's important to remember that it's an ongoing process and your budget spending may be adjusted as you go. With the right approach, you can craft a budget that ensures the financial health of your community and meets the expectations of your residents.
At Red Rock Management, we pride ourselves on helping HOAs navigate the complexities of budget creation. If you have questions or would like to learn more about Red Rock, contact us at support@gowithredrock.com.
תגובות