Many HOA board of directors use the end of year to set forth their budgets for the following year. But, with a busy holiday season, it’s easy to procrastinate (you know who you are!). Whether your board still needs to take a hard look at this year’s budget or has already done so, we’ve outlined a few commonly misunderstood components to help make financial planning less painful in the future.
As a HOA you’re required to maintain and determine the cost to rebuild, repair, and replace building components when the time comes. This is especially important for heavy hitters like roofing, siding, HVAC, paving, swimming pools, clubhouses, etc.
A good Reserve Study will help your community protect property values and plan for the future. It provides a road map for how much money your HOA should be setting aside into reserve accounts to meet these needs when the time comes. Performing a Reserve Study and following its findings will help you avoid hitting owners with surprise special assessments in the future.
Always set aside funds for unexpected expenses – aka “contingencies.” The most common of which are repair costs for common areas that are not covered by insurance. “Bad debt” is another offender. Collecting 100% of assessments is rare. Use past data from prior years to determine this year’s allowance.
Many boards focus their efforts only on the operating budget. But, you should also make sure your budget discloses expected capital expenditures for the coming year.
Things like replacing the roof, installing a new swimming pool, or refurbishing a clubhouse are all expenditures that should be reflected in your budget.
Read More: Fund Reserves by Cutting Your HOA Budget