For many HOA and community associations, the fiscal year is winding down. That means budgeting season is upon us. While a select few may enjoy dusting off and sprucing up the numbers each year, for many HOA boards this can be quite stressful.
This post will outline four fiscal habits every board should cultivate, a step-by-step budgeting process to ensure you allocate funds wisely, and when it makes sense to bring in a property management company to assist during the process.
No matter your budget, neighborhood size, or location, these four fiscal habits are best practices for any HOA or community board.
Sometimes, the best advice is extremely simple. That’s the case here. Ensure the board doesn’t get in a bind by overextending their finances. How? Don’t spend all your money.
Keeping funds in reserve leaves room for the unexpected to occur. The exact amount varies greatly depending on the size of your community, the types of units on the property, and the amenities you offer, which all should be reflected in HOA fees.
Keeping accurate reports of board activities has never been easier. Make sure the HOA board treasurer keeps detailed notes and a record of all financial transactions. Detailed reporting makes it easy to bring in new members and rotate people off the board while the budgeting and finances stay legible, understandable, and intact.
When it comes to the IRS—you should always be prepared. An audit will sneak up on you when you least expect it. Make sure you’re ready if (knock on wood) they ring your doorbell.
Review your board’s insurance policies each year to ensure you have the coverage you need. It’s always best to cover your bases so that the board and the neighborhood are protected should the worst occur.
If your HOA board budgeting process is confusing or overly complex, start by boiling it down to these simple steps.
Create. Use the budget from previous years—or from similar neighborhoods if your board is new—to create a rough draft. Typically, an HOA board treasurer can spearhead this responsibility.
Review. Once drafted, the board should meet as a group and discuss the budget, make any necessary tweaks, and approve the draft.
Prioritize. Where do the board priorities lie? The board will decide what’s realistic for the upcoming fiscal year. Prioritize what needs to get done now versus what could be accomplished in future years.
Research. Now that priorities are set and the budget draft is approved, it’s time to research pricing in real-time. The budget draft may estimate pricing, but nothing is set in stone until the board collects estimates for services and projects.
Hire. Once your research is complete and the board agrees, it’s time to enter into agreements with suppliers and other contractors.
Reserve. Finally, since you’ve no doubt been following the first best practice mentioned above, you’ll have some unspent funds in your yearly budget. It’s time to allocate those funds to the following:
Deduct. Put aside a portion of your reserves to meet insurance deductibles should the worst happen.
Legal. Keep the rest safe and unspent for any legal fees that may occur.
Keeping in mind that HOA board members are volunteers with limited availability, you may consider partnering with an HOA management company to streamline the process. Not only can a management company provide support during budgeting season, but throughout the year, as well. For many HOA boards, the cost of working with a management company is well worth the investment.
Of course, if you are considering working with a property management or HOA management company, you’ll want to consider this expense when preparing the HOA budget.
If your board is still unsure whether an HOA management company is worth the investment, consider the challenges of self-management. With board members’ busy schedules, it's increasingly difficult to find time to get everyone in the same room, even if that room is a virtual one. Plus, when everyone is a volunteer it’s easy to succumb to low levels of motivation. After all, you’re not getting paid for your time.
Finally, it can be exhausting to always be the “bad guy” in the neighborhood. Wouldn’t it be nice to relax and enjoy the beautiful neighborhood you live in instead of having to stay on top of rules, regulations, and dues collections?
Taken together, it’s safe to say that the ROI of partnering with an HOA property management company is almost always enough to make hiring a property manager a no-brainer in favor of the HOA board.
If you decide to partner with a professional HOA management company, here’s what you can expect:
In fact, approximately 85% of homeowner associations are managed by professional management companies (Buildium). Once your board realizes how much simpler life can be, it may be time to find a local firm to best fit your board’s needs.
Whether it’s time for your HOA to start planning next year’s budget or your fiscal season has a few more months, it’s always a good time to think through the steps and bring in the help you need early. Budgeting can be a pain, but with the right strategy and expertise, you can breeze through it like clockwork.