Managing a homeowner’s association (HOA) funds can be quite difficult. Failing to do this properly can lead to serious repercussions. Indeed, a budgetary shortfall can put quite the burden on the association as a whole. This can lead to increased dues and special assessments. This will eventually lead to an overall feeling of disappointment and frustration from the rest of the community. To avoid this, it’s crucial to get budgeting right. To help make things easier for you, we thought it would be useful to put together a brief article on budgeting best practices. By following these best practices, you give yourself the best shot at managing HOA funds.
Refer to the Community’s Governing Documents
The board must make sure that every action is within its legal authority and responsibility. This means that you should consult your community’s governing documents before taking any major undertakings. Your governing documents will include requirements for the preparation and distribution of the budget. They will also have information on the services and maintenance requirements that the association must provide. You should create a summary document of the specific requirements from your governing documents so that you can easily refer to it when you are completing the budget.
Put Together a Budget Development Committee
To better manage funds, it would be in your best interest to put together a budget development committee. This committee will be comprised of homeowners and receive input from the HOA president, the community manager, and the finance committee. They’ll also be listening to the needs and qualms of the homeowners in order to best allocate funds depending on the needs of the community.
Review your Reserve Fund Analysis
It’s important to review and replenish your HOA’s reserve fund each year, even if your state, province, or HOA bylaws don’t require it. An HOA reserve fund is money set aside by a community association to cover future replacements and repairs for major components the association is obligated to maintain, that doesn’t occur annually. Ideally, you should maintain a 20% reserve fund, but at the very least, you should have enough money to cover the deductibles on your HOA’s insurance policies. This way, your association can take care of the needed repair and replacement projects before they become larger and more expensive.
Review Past Financial Statements
Lastly, there’s a lot that you can learn from the past. This is why you’ll want to review past financial statements so that you can compare budgets and have an idea of how funds used to be allocated within the community. While we can’t assure you that things will be the same, it will at least give you a good place to start.
We hope this article proves to be useful when it comes to helping you better manage HOA funds. While all of this may seem tedious, taking the time and effort to ensure that everything is done right will pay off in the end. Be sure to keep everything you’ve learned here in mind so that you can make the most informed decisions regarding HOA budgeting.
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