Creating your association’s annual budget can be tough task but it provides the association a great opportunity to review the financial well-being of the community. While most covenants require a budget, it’s imperative that both short-term and long-term planning is reviewed each year while creating the budget.
Here are 5 quick tips to help everyone work together to create the right budget for your community:
Creating the Annual Budget
When you start the process of creating the annual budget, it’s helpful to review the year-to-date actual expenses vs. budget numbers. Once you know the financial state of the association, prioritization of necessities should be first and foremost before any “wish list” items make their way into the budget.
Planning for Emergencies
While creating the budget, it’s important to budget for unexpected emergencies natural disasters, emergency maintenance repairs, and damaged HOA property.
Create a Plan for the Future
As you begin to plan your annual budget, you will want to use the current budget as a starting point. Every community should have 1, 3 and 5 year forecasted plans. These plans should include anticipated projects such as maintenance repairs as well as account for increases in items like insurance premiums and utility rates.
It’s imperative for associations to fully fund their reserve accounts as determined by their reserve study. By funding the reserve account, this will help cut down on future special assessments.
Review the Budget Throughout the Year
It’s good practice for the association to review the budget throughout the year. Inevitably, there will be unforeseen expenses or delinquencies that may not have been accounted for. It’s best practice to follow the budget and track how well it’s working and discuss at board meetings throughout the year.
Once the budget is completed, make sure that it is shared with the entire community including explanations as to major decisions and compromises that were made in order create the budget. This level of transparency will help answer any questions or squash negative comments about the process.