Every homeowners association relies on a carefully crafted budget for its yearly expenses. But, what does an HOA budget template look like? And what should it include?

 

What Is an HOA Budget Template? Why Is It Important?

Homeowners associations operate on an annual budget usually prepared by the HOA board or the budget committee. This budget serves as a guide that the board will use for the coming year’s expenses. Additionally, it is from this budget that homeowner dues are calculated.

It’s easy to say that an HOA budget is important. But, what exactly makes it so essential to a homeowners association?

First of all, the HOA budget has a direct impact on the association’s finances. Any board that uses a “go with the flow” approach to its expenses is destined to drive its HOA into financial ruin. The budget acts as your board’s guide — letting you know what you should spend money on and how much. This ensures that you don’t spend too much on a single line item and run out of money for other necessary expenses.

Secondly, the HOA budget allows you to determine how much to charge owners in dues. Without a template, you may end up charging too little or too much, which are both equally bad. Charging too little will put your association in a deficit and force you to levy special assessments. On the other hand, charging too much could tempt you into spending more money than necessary, simply because the funds are available.

A budget template also makes it easy for the board to plug in amounts for the expenses. This allows for a smoother and stress-free budget planning session for everyone involved.

Finally, the HOA budget template allows for transparency in your association. Homeowners have a right to know where their money is going, and the budget addresses that. In some states, the board is even required to present the budget to the membership for ratification. North Carolina, for instance, has such requirements for both HOAs and condominiums.

 

What Is Included in an HOA Budget Template?

You already know that the HOA budget plays a critical role in an association’s finances. Of course, there is a difference between saying you need a budget and actually preparing the budget. What should an HOA budget template even include anyway?

 

Expected Income

The first part of any HOA budget should cover the expected income or earnings of the association. This usually comes in the form of dues and assessments, though it can also include things like interest income.

If your association rents out its common facilities or amenities, income earned from rentals will fall under this section as well. Of course, it is not always possible to anticipate rental income for the coming year, unless it is a fixed event that happens annually.

 

Anticipated Expenses

The expenses portion of the HOA budget template is typically divided further into sections. There is no single correct way to prepare this part of the budget, as different HOAs may adopt varying styles. However, it is important to create an organized format that homeowners can easily interpret.

The following sections typically appear under the “expenses” portion of the HOA budget:

• Administrative Expenses. This includes management fees, legal fees, bank charges, office supplies, the cost of preparing newsletters, and even reserve studies.
• Maintenance Expenses. Line items under this section can include landscaping costs, cleaning services, maintenance supplies, electrical costs, plumbing costs, and the like.
• Utilities. Under utilities, you have expenses such as gas, water, electricity, sewage, phone bills, and even trash collection costs.
• Fixed Costs. This includes recurring costs that usually come at a fixed rate such as insurance premiums, property taxes, and annual report filing fees (Secretary of State).

 

Reserve Contributions

Lastly, every HOA budget should include reserve contributions. This is the amount the association should set aside in its reserve fund for future major repairs or replacements. The board must maintain the proper reserve level, which is usually 70 percent funding. To know how much is considered fully funded for your HOA, it is important to conduct a reserve study.

 

Sample HOA Budget

Make your budget planning season easier and less stressful with the help of the homeowners or condo association budget template below.

 

Download Your HOA Budget Excel Template Here

 

Tips for Planning Your Next HOA Budget

Preparing an annual budget for your association can come as a challenge, especially if you don’t have a background in budgeting or have simply never done it before. As part of your HOA board, though, it is one of your duties to plan for the coming year’s expenses. Here are some tips you can use when drafting your next HOA budget.

 

1. Review Past Budgets and Reports

One of the best ways to ensure you’re on the right track is to look at past budgets and financial reports. When you do this, you can determine how much you spent on every line item in the previous years. This will give you an idea of how much you should expect to spend this year. Reviewing past reports is always a good place to start when you are planning your HOA budget.

 

2. Send Out RFPs

While it is good practice to review past budgets, they can only tell you what happened in previous years. But, things can change over time.

For instance, vendors can increase their rates or give special discounts. Before preparing your budget, it is a good idea to send out requests for proposals to vendors and suppliers. Doing this will allow you to gauge how much to allocate per service or expense.

 

3. Add a Buffer

This may seem like an obvious tip, but it still needs to be said. When planning your HOA budget template, don’t forget to add a buffer. Doing so will give you extra room in the budget to cushion unexpected costs or unforeseen increases. Of course, it is equally important not to go overboard with your buffer.

 

Easy HOA Budget Planning

The homeowners association budget preparation season can be a taxing period for HOA board members, but it doesn’t have to be that way. With an HOA budget template, you can easily input the expenses and amounts you expect for the year. From there, you can determine how much each homeowner has to pay in dues.

Of course, with Condo Manager’s HOA management software, budget planning is made even simpler. With a dedicated budget planning module, all you need to do is plug in the numbers and let the software do the rest. You can even export the budget as you see fit. Call us today at (800) 626-1267 or contact us online to set up a free demo.

 

RELATED ARTICLES:

• What Are HOA Reserve Funds? And What Is It For?
• HOA Accounts Payable Report: What Is This For?
• HOA Account Delinquency Report: Does Your HOA Need One?

HOA budget planning is an integral part of running a homeowners association. Whether you are new to the HOA board or simply a concerned member of the community, it is essential to familiarize yourself with the planning process.

 

Why Is an HOA Budget Necessary?

What is an HOA budget anyway? And why is it so important? Simply put, an HOA budget is a projection of expenses required to keep a homeowners association in operation. Without it, an association cannot calculate HOA dues and quickly fall into ruin.

Additionally, a budget can help the board make smarter decisions. For instance, if there is a project coming up, the board can turn to the budget to see how much it can allocate to the project. Having a budget in place also helps maintain transparency within the association. Because the board is required to present the budget to members, it acts as a way to hold board members accountable for their spending.

 

Annual HOA Budget Guidelines to Follow

Before the start of every fiscal year, the HOA board sits down to discuss and create the annual budget. Here are the considerations you must keep in mind during your HOA budget meeting:

 

1. Analyze Past Budgets and Financial Statements

A good way to make a plan for the future is to look to the past. Your board should dig up the association’s past financial statements to gain a better understanding of the HOA’s needs as well as your current standing. Using past budgets and financial reports as a guide can help you start on the right foot.

You don’t need to go all the way back and review a decade’s worth of financial statements. The past three years’ budget and financial reports should work just fine. Check each line item and keep an eye out for any trends. Perhaps your association consistently spent more on landscaping than it budgeted for. In that case, you can either increase the budget for landscaping this year or find ways to cut back on this expense.

 

2. Specify Expenses by Item

Your HOA budget is a blueprint of your projected financial expenses, so it only makes sense to be as specific as possible. Don’t just say you need $1,000 for maintenance. There are so many things that could possibly fall under maintenance expenses, such as plumbing maintenance, electrical maintenance, and the like. Break down each item as much as possible so that you know where money has to go.

 

3. Plan for Possible Increases

One of the HOA budget best practices you can adopt is to plan for expenses that constantly fluctuate. This typically relates to insurance and utilities. Although you can get a good idea of how much you can expect to spend on these items, they can increase unexpectedly and make you suffer a deficit.

A number of factors can influence utility charges. For instance, a drought can drive up the cost of water. When it comes to insurance, premiums and rates often shift every year, and you may very well end up paying more than you expected. To plan for this, look at historical data and calculate how much insurance rates have increased from year to year. Then, apply the same increase to arrive at your budgeted insurance cost.

 

4. Allow for Contingencies

Although proper insurance coverage is paramount to any association, not all expenses can be covered by your policy. HOA boards that encounter unanticipated costs usually either levy a special assessment (which homeowners dislike) or dip into the reserve fund.

Taking from the reserves might result in having to increase dues for the next year, though, since you need to make up for what you spent. To avoid these unpleasant scenarios, it is best to always budget for contingencies.

 

5. Evaluate Your Reserves

Homeowners associations use money from the operating fund to pay for day-to-day expenses such as maintenance costs, wages, and event management fees. HOAs keep a separate fund, known as a reserve fund, for major repairs and replacements that are usually set aside for the long-term. Common examples include roof replacements, retiling, equipment installations, and the like.

To continuously have money in the reserves, your HOA board must also include it in the budget. The amount varies from association to association. Generally, though, about 25 to 40 percent of HOA dues go into the reserve fund.

It is good practice to conduct a reserve study every few years. This way, you can stay on top of all your major assets and keep your reserves well-funded. Some states have specific requirements concerning reserve studies. For instance, in Virginia, the law mandates that associations must perform a reserve study at least once every five years.

To learn whether your state has reserve study requirements, check here.

 

What Does the Law Say?

As with reserve studies, there are some laws on HOA budgets, though they can change depending on where you’re located. In California, for instance, Civil Code Section 5300 dictates that associations must distribute an annual budget report to all members 30 to 90 days prior to the end of the fiscal year. The same section even breaks down what the annual budget report must include at a minimum, including a pro forma operating budget and a summary of the HOA’s reserves.

There are also some state laws on dues increases, which your budget will directly affect. If your budget increases significantly from the previous year, then so will the amount you charge in dues. California Civil Code Section 5605, though, might restrict your budget and dues increase. The section states that an HOA board must obtain approval from members if it plans to raise dues by more than 20 percent of the previous fiscal year’s dues.

 

Additional Tips for HOA Budget Creation

These additional tips, while not compulsory, can help you draft a better HOA budget:

• Put Together a Committee. Sometimes, board members need extra hands when putting together a budget. Consider assembling a budget committee to help you analyze past reports and make projections.
• Schedule a Meeting for Budget Planning. It is imperative to approach budget planning with a clear head, so it is wise to dedicate an entire meeting to the task.
• Call Vendors for Estimates. Even the cost of vendor services can fluctuate. As preparation, contact your vendors to verify whether they will impose price increases. You might also want to ask for special promos or discounts, especially if you have a long-standing relationship with the vendor.

 

Homeowners Association Budget Sample

Coming up with a budget from scratch can be difficult without a proper example of an HOA annual budget. To help you out, use the one below as your HOA or condo association budget template:

Download Your HOA Budget Template Here

 

Digitize Your Budget

The HOA budget functions as a roadmap of sorts for your association’s expenses for the coming year. It helps determine how much homeowners should pay in dues and keeps the HOA board on track financially.

Having trouble preparing your annual budget? Condo Manager can help. Our state-of-the-art HOA management software makes budget planning easy. Just input the amounts and let our program do the calculations. Contact us today at (800) 626-1267 to learn more or fill out our online form to schedule a free demo.

 

RELATED ARTICLES:

• What Is A HOA Reserve Study And Does Your HOA Need It?
• Frequently Asked Questions on HOA Loans
• Are HOA Fees Tax Deductible?