Building a Strong Financial Plan for Your HOA
Creating an accurate annual budget is one of the most important responsibilities for a homeowners association (HOA) board. A well-planned budget ensures your community can maintain common areas, fund necessary repairs, and keep operations running smoothly, all while minimizing financial surprises. Financial surprises can be very disruptive to an community, whether in Chicagoland, or not, so it is very important to plan ahead.
Here’s some key elements to consider in order to build an accurate HOA budget:
Review Historical Expenses
Start by looking at your HOA’s past financials, if the association has been established. What did you actually spend last year? Where did costs increase or decrease? This helps you forecast more accurately and identify patterns or problem areas. Pay attention to the trends of expenses and needs of the owners in the association.
Identify Fixed and Variable Costs
Fixed costs like insurance, management fees, and landscaping contracts are predictable. Variable costs (such as snow removal, repairs, and utilities) may fluctuate, so it’s wise to estimate on the higher end.
Plan for Reserves
A strong HOA budget includes funding for your reserve account. This savings is used for big-ticket items like roof replacements, repaving roads, or major mechanical repairs. Reserve studies (typically done every few years) will help determine how much to set aside.
Anticipate Future Projects
Are there upcoming improvements, such as new fencing, signage, or amenity upgrades? Include these in your long-term budget planning, even if they’re a few years out. A reserve study should also be created, more on that later.
Leave Room for Contingencies
Unexpected expenses happen. It’s smart to include a contingency line item, typically a small percentage (5-10%) of your total budget, to cover emergencies or unforeseen costs. A reserve study should typically cover large ticket items but sometimes small things can occur. It is equally important to plan for these occurrences.
Communicate Clearly with Homeowners
Once the budget is drafted, share it with residents. Transparency builds trust and helps explain any necessary increase in fees. If need be, provide a summary that highlights where dues are going and what improvements are planned. Many homeowners are not familiar with the details of budgets and financials. Communicating effectively with the owners is typically highly appreciated.
Revisit & Adjust Regularly
Budgets aren’t a “set it and forget it” product. It is important to understand your budgeting needs will change over time. Check in on your financials monthly or quarterly and be prepared to make those adjustments. Being proactive helps avoid shortfalls and special assessments. Work with your community association manager during meetings to make sure financials are on-track throughout the year.
Conclusion
A thoughtful budget sets your HOA up for success! The budget is directly responsible to fund activities such as keeping the community maintained, financially healthy, and attractive to current and future homeowners.
Need help building or reviewing your HOA’s budget? Please reach out! We can assist in guiding Chicago area associations through smart, sustainable financial planning. We also offer full community management and would love the opportunity to discuss our services and answer any additional questions.
