Top 5 Best Practices for Your HOA Budget

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Top 5 Best Practices for Your HOA Budget

While Homeowners Associations (HOAs) support residents in myriad ways, they also impose rules to help maintain a clean and cohesive atmosphere. A board (typically comprised of member residents) is a multi-functional resource.

Tasked with acting in the best interests of all, boards are intended to oversee grounds and utility maintenance, enforce regulations per the bylaws, and work with a community management association to ensure insurance and the overall finances are soundly addressed.

These are all essential services, but the budget and the overall finances are the aspects that drive the entire operation. Cash flow is everything. Without a solid footing, a board can endanger the property owners’ investments as well as the future financial health of the entire community.

Budgeting is a delicate balance of understanding the historical allocation of monies in combination with a genuine evaluation of where funds are needed through the upcoming fiscal year.

HOA budgeting can often be a challenge, especially since it needs to be updated annually. Here are our top five solutions for best practices:

  1. Be Tactical

Short-term solutions have a limited shelf life. Like band aids, they will only get you so far for so long. Being tactical means bringing a deliberate strategy to your HOA budgeting. Create that plan to evaluate where the HOA is today, and then give a hard look at where it needs to go; its long-term objectives for current and future expenses to maintain and expand.

Create this action plan with definable steps that have realistic dates. Rome wasn’t built in a day, and neither will the overhaul of your HOA operation or its budget. Prioritize the steps based on the severity of the issue, its need to provide for seasonal weather changes (like preventative air conditioning maintenance for the upcoming summer months), and the overall goals of the HOA and its residents.

Having documented these achievable goals and perhaps getting estimates if outside contractors are needed, determine the responsible party to oversee the implementation or overhaul. Some HOAs have effectively used committees to share the burdens. These can also serve to measure and analyze success.

One caveat about action plans. They can’t be too fixed with contingencies that are too interdependent with too tight timelines. You need to be able to pivot as needed. The last thing you want is the dreaded domino effect where everything further down on the list takes a dive because it was completely contingent on the completion of something else. Or even worse…the income from something else. Be prepared to frequently revisit the plan to keep it updated in real time. Flexibility is your golden rule here.

  1. Evaluate Maintenance and Utility Expenses

These costs can be stealth. They can creep up in innocent-looking enough increments until it seems your ongoing maintenance, utility bills, landscaping, accounting/legal fees, and even those fixed costs like taxes and insurance seem to conspire against you.

You know you need to keep reserve funds robust enough for the unexpected. The two things you don’t want to do is dip into those funds or to announce a dreaded special assessment for any one of these type expenses. Maintaining reserve funding and an adequate operating budget allows HOAs to cover maintenance and utility costs with operational funding, not by deploying reserve funding for emergencies or unexpected occurrences.

The key here is to never let these expenses get away from you. One of your HOA’s most essential tasks is consistent evaluation of the on-going maintenance and utility costs.

Here again, an eye on both the past and the future will serve you and the residents, well.

  1. Calculate Annual Assessment

No board has a crystal ball. But if it does its due diligence by being tactical and consistently evaluating operational expenses, it is entirely possible to mitigate the damage to the residents’ wallets and their trust by being able to announce a minimal (or no!) annual increase.

Those first steps to determining what the next year will bring is a rather straightforward one. Numbers don’t lie. Your list of expenditures is typically fixed with the same types recurring year after year.

The key is to take into account all relevant expenditures throughout the year, to include management fees, maintenance, vendors, salaries, insurance, utilities, and funds to feed the reserve. Adding a little cushion for contingencies is always a great idea.

Remember that people in general would rather be charged the right amount instead of a lowball amount that will wind up being insufficient. No one wants the association to be underfunded and the property incapable of being well maintained. Honest evaluations that permit sufficient maintenance will go a long way to a happy community that remains financially healthy.

  1. Examine the Reserve Fund

Although your HOA’s reserve fund is your lifeboat, you don’t want to deploy it unless you must. (You also don’t want to use it for expenses like recurring liabilities or capital costs!)

Managing this lifeline is one of the most effective things you can do for financial stability. It speaks volumes about how well-run your HOA is and about the face of its future. To that end:

  • Ensure you have collected sufficient HOA income so you can allocate a percentage for special assessments or unpredicted expenses
  • Remain familiar with long-term liabilities and obligations, so it’s clear when it’s suitable to use reserve funds
  • Understand the true purpose of the reserve fund so as not to misappropriate it or make the HOA legally vulnerable
  • Always confirm that the fund is at an appropriate level

Finding your funding short for repairs or emergencies is almost the worst place to find yourself. Even worse than that is having to tell your residents.

  1. Communicate

When it comes to numbers, or any communication with residents, focus on accuracy and lead with transparency.

Budget documents can be confusing, so we suggest including a notes column to explain the individual line items. Comparison columns are also essential for a snapshot of expenditures/income year over year.

We also like the idea of a cover letter that speaks in clear terms to explain the hows and whys of the numbers. To provide a full picture, this letter is also a terrific opportunity to extoll the board’s successes and outline some of the challenges it faced.

In any relationship, effective communication builds trust. It is never easy to please everyone, but when you communicate honestly and manage your HOA with an impeccable code of conduct, you will have built a strong foundation upon which to stand.

In the community management business for over 25 years, Ameri-Tech has earned its outstanding reputation by employing top executives, senior staff property managers, and a host of specialized professionals. Working in association with all manner of contractors to oversee 30,000+ units in the Tampa Bay area, the organization also boasts certifications in emergency management response services. If you are interested in a no obligation presentation to learn about the Ameri-Tech difference or to have your company considered for their Preferred Vendor Program, contact Sharon Perez at or at 727-726-8000, extension 246.

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