The Importance of Preparing a BudgetIt’s budget season! Budgeting can be one of the most tedious tasks for property managers and association board members. Most covenants require a budget and budget disclosure, but there is a vast difference between a hastily assembled and subsequently ignored budget versus a well-planned and regularly reviewed budget.

A realistic and effective budget can be one of your association’s most important management tools now and for future boards as well. Whether you’re a property manager or association board member, here are some ideas to help you create and manage “killer” association budgets.

Building your annual HOA budget

Your current budget is only a starting point, since I’ll bet that at least one thing (probably several) didn’t go quite according to plan over the last year. Those changes, along with other projected revenue and expense adjustments, become the basis for the next budget. Here are some tips to create a realistic budget:

  • Start well in advance. Why rush? Give yourself at least a couple of months before the budget must be approved and distributed to residents.
  • Set goals. What do you want (or need) to do differently next year to maintain and improve your community? This is a great pre-budget assignment for board members.
  • Update the current budget. Update and view actual year-to-date expenses next to budgeted amounts. Taking the time to do this now will save a lot of hassle (and guessing) later.
  • Review actual vs. planned revenue/expenses. Focus on the major categories, like dues, utilities, landscaping, and amenities management. Document the reason for any variance, like extended pool hours or improved dues collections procedures. Future boards will appreciate this as well.
  • Create a forecast. How will current expense adjustments and proposed new projects impact the budget? Adjust the revenue and expense line items accordingly. Be realistic, and don’t forget to incorporate contractual price increases and inflation.
  • Fund the reserve account. Ensure that you fully are funding the reserve account as dictated by your reserve study.
  • Balance the budget. Unlike our government, your community can’t spend more than it takes in. The final budgeting step is an exercise in prioritization and compromise. You’ll most likely need to make some tough decisions that may even upset some residents.

Staying on budget

Once you have a budget in place, it’s important to keep it current, reviewing actual revenue and expenses vs. budget on a monthly basis. Here are a few tips to help you manage your budget over the course of the year.

  • Report budget status each month. With the help of the property manager, the treasurer should review revenue and expenses vs budget each month and report major variances or trends.
  • Utilize preventative maintenance. Delaying repairs can be expensive. Use a proactive maintenance strategy to extend the life of major assets, minimize down-time, and reduce overall maintenance costs.
  • Don’t bury unbudgeted expenses. Don’t put that unexpected pool pump replacement in the social budget just because there’s extra money. Utilize the correct category, and then document the reason for the variance.
  • Fund the reserve account. Your reserve study outlines major repair and replacement projects that will be required in the future. This money is already allocated, and must be available when needed.
  • Review contracted vendor expenses. If you notice an increase in extra costs, contact the vendor. It may be time to renegotiate, or find a new vendor.
  • Keep a close eye on revenue. Stick to your policies and quickly begin collection efforts when residents fail to pay dues. This sets the tone that the community takes this process seriously, and will encourage everyone to pay on-time.

Failing to plan is planning to fail

Take the time to create a budget that realistically projects next year’s revenue and expenses, review it every month to keep it current, and document variances so the current and future boards will understand the rationale behind any adjustments. If you have a questions or need help, contact a CPA with community association experience.

Neal Bach, CPA