The responsibilities of homeowner association boards cover many aspects of community management. Appearance and architectural regulations, common area maintenance, clubhouse and pool services are just a few of the areas an HOA board monitors. Probably the most important piece of the HOA board is the financial management of its funds. In order for an HOA to function effectively and properly, sound financial practices should be followed.
Why does an HOA need a budget?
Funds from HOA dues are used as revenue to support a community’s general operating expenses and a “reserve” fund for any major improvement projects that may be needed in the future.
When planning the budget, a reasonable estimate of known operating expenses should be calculated as well as planning for future capital expenses.
Your general operating expenses should include items such as:
- Landscaping and common area maintenance
- Security services (if applicable in your community)
- Insurance and taxes
- Utility expenses
- Accounting and legal fees (Utilizing professional services are a must in these areas!)
- And any other expense that is deemed to be part of the day-to-day function of the community
Also consider how often each of these expenses are incurred so you can plan accordingly. Is it a weekly, monthly or quarterly expense or an annual fee? Keeping track of all expenses, past and present will help you better estimate what will be needed for the future and will provide a solid foundation for a successful HOA, resulting in satisfied homeowners.
For larger scaled projects that don’t occur on an annual basis, it is important to have funds set aside, or in reserve, for major projects. A new pump for the community pool would fall into this category as would replacing a roof on a common area building, repair of roads, sidewalks, tennis courts or fencing in HOA-controlled areas. Conducting a reserve study to determine what the needs may be over a 10- to 20-year period would provide the data to support how much money the HOA would need to set aside in order to pay for these projects.
More to Think About
States typically have laws that govern how HOA finances are recorded and reported so it is important that the board seeks advice from professionals in accounting and legal areas. Aligning with a trusted association management firm provides guidance on keeping the finances on track, ensuring that your association is in compliance with the HOA by-laws and state regulations, how best to handle violations, etc.
The foundation of a well-managed HOA starts with a solid budget plan and it is not something that should be ignored. If you need assistance with planning your budget or would like more information, please visit Omega Association Management or call us today at 919.461.0102