Preparing an HOA or condominium budget is a major initiative that board members take on every year. For many, this can be a challenging and stressful project, but getting it right is crucial to ensuring the community’s financial stability. In this post, we’ll guide you to success by sharing six essential steps to start preparing your community’s budget.
It can be easy to feel overwhelmed by the process of planning a budget for an entire year. That’s why it’s important to start early and gather the information you need beforehand.
Alexandria Pollock, a Regional Sales Manager at BuildingLink, urges communities to get a head start on preparing the budget. “So many things can change in a community association over the course of a year,” she says. “Community managers should make note of potential improvements or changes in services, and gather cost proposals to incorporate into their budget planning. Don't wait until a week before the draft budget is due to be reviewed by the Board of Directors! Gather this information over time, and be prepared when walking into the first strategic planning meeting with the Board or Finance Committee.”
To simplify the entire budgeting process, here are our essential steps for success:
Kick off your budgeting process with a goal-setting meeting. Work with your board and property manager to determine what you want to accomplish within the next year. This might look like implementing software solutions to streamline your operations, or completing much needed maintenance projects on schedule.
Interested in advice from an industry veteran as you get started on budget planning? Check out our blog, “6 Easy Condominium & HOA Budgeting Tricks From An Industry Veteran.”
Your community’s governing documents will provide detailed information on key budgeting components, such as what the association is required to maintain or when the budget is required to be mailed to owners/members of the association.
Be sure to review your community’s financial statements, such as your balance sheet and income statement, for clear insight into your association’s financial health. For example, if your community is spending more than its earning, you’ll need to adjust your budget accordingly. Drill down into variances by General Ledger category and make any adjustments necessary to balance the budget.
Looking at your past annual budgets can help you understand past projections and how they stacked up against actual expenses. This can help you identify trends in whether you’ve under or over-budgeted for certain areas, allowing you to forecast more accurately for the year.
Working off of previous budgets provides a solid foundation for calculating the upcoming year’s costs. We also suggest reviewing your contracts and speaking with your vendors to check whether there are any anticipated changes in rates. You may need to adjust your costs for inflation.
Make sure your reserve study is updated and your funding plan for the upcoming year is adopted by the Board of Directors so you can ensure you have accurate data and are on the right track with funding your reserves. If your reserve fund isn’t adequately funded, you may run into financial challenges that require you to pause projects or charge unit owners a special assessment.
Need a refresher on the differences between a reserve study and a reserve fund? Check out our blog, “3 Key Components of an Association Budget,” to learn more.
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When you’re ready for smarter property management, book your BuildingLink demo today.