5 Best Practices for HOA and Condo Association Budget Planning

Photo of group of people at table working on budgets

October is an especially busy time for homeowners associations and condo associations because that’s typically when they’re in budget-planning mode and getting everything in order for the upcoming fiscal year.

Budget planning at this level involves a handful of moving parts and considerations, and if it feels a little bit overwhelming as you get started, just keep these five best practices in mind:

Give Yourself Plenty of Time

If you’re reading this, you probably already know what a substantial undertaking planning an HOA or condo association’s budget can be. Treat time like an ally and give yourself — and those who will be working on it with you — ample time to do it right. Remember, you’ll probably have RFPs (requests for proposals) to send out to potential vendors and plenty of research to complete before you can put down any hard numbers.

We typically deliver the draft budgets to our clients’ board of directors or finance committees within 90 days in advance of the association’s upcoming operating year. This ensures every decision-maker has the necessary time to review the budget, ask questions or make revisions.

Get the Details Down in Writing

Your members deserve to know exactly what’s going on in their community, and it’s their right to be able to see the budget you’ve put together. With this in mind, it’s important to document as many details as possible. Not only will it increase transparency in your community but it’ll also save you time that would otherwise be spent answering questions.

We always recommend that budgets should include detailed narratives with descriptions about general ledger accounts so that anyone — whether they’ve seen the budget before or not — can tell what each line item is for.

Keep the Needs of Key Stakeholders in Mind

One of the biggest mistakes you can make is not considering the buy-in you’ll need from other association members, especially board members. Moreover, you can’t build a budget in a vacuum; rather, you need to plan it out within the context of the current and historical financial health of your community.

Regardless of your HOA or condo association, these items should always be considered during the budget-planning process:

  • Legal requirements of state statutes and governing documents
  • Membership and board expectations, goals and desires
  • Committee feedback
  • Financial forecasts and analyses of past financial activity
  • The association’s audited balance sheet, specifically the members’ equity balance
  • Required reserve funding
  • Contract increase, renewal and expiration terms
  • Pending expenses (projected year-end figures)

Zero-Balance Your Budgets

As a general rule, you should always zero-balance your budgets. What that means is that, on paper, every dollar of your budget should be assigned a specific role. 

Any funds you plan on saving or spending should always be reflected in your budget. This makes it easier for you, the board and any other association members to understand exactly how everyone’s money is being spent. It’s easier than it sounds — just make sure you don’t have any money unassigned to a specific purpose by the time you’re finished making your budget.

Do Your Due Diligence

Planning an HOA’s or condo association’s budget is not an easy task, and you might feel a major sense of relief when you complete everything you need to. But there’s nothing worse than crossing the finish line only to worry about whether or not you got everything right.

We put our clients’ budgets through an intensive peer-review process that includes the involvement of one of our senior vice presidents before they ever reach the association board for final approval. In addition, we always include helpful charts, budget history, supporting information and a cover letter expressing our recommendations to make the board’s life a little bit easier, too.

Additional oversight is always a good idea, regardless of whether you’re confident about putting together a sound financial plan or not. Remember, it’s never a bad idea to get as many people as possible to take a closer look at the work you’ve done because peace of mind is priceless.

Want more recommendations and tips for a smoother budget-planning process? Want to see how we help our clients build better budgets? Get in touch with us today to learn more about how Cardinal Management Group, Inc. leverages over 30 years of experience to help communities just like yours.

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