Does Your Homeowners Association Budget Include the Right Components?
June 26, 2020 / by HOA Manager
Many homeowners associations operate on the fiscal year (July through June). If your Association is one of them then hopefully you have your new and improved budget ready to go because July is just around the corner.
As an HOA board member you probably know the basics of HOA accounting, and that the process is reversed from the typical American’s household budget.
In an HOA, first expenses are estimated and then the source of revenue is determined, mostly in the form of HOA fees. Check out the article below to make sure that your budget contains all of the basic components to keep your homeowners association running smoothly.
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What Should a Homeowners Association Budget Consist Of?
The operating expenses portion of the budget determines what services will be provided to homeowners, as well as day-to-day maintenance of the community. These expenses include utilities, management, accounting and legal services, as well as cleaning and maintenance of the property. It is also useful to lay out when these services will be provided -- weekly, monthly, or seasonally -- when determining costs. Additionally, the budget should specify who will provide these services, whether it will be a contracted company or a property management employee.
Every year, the HOA board must put money in reserve for long-term, major projects. Reserve funds can be used only for repair, maintenance or replacement of the parts of the property that the association has promised to maintain, or litigation involving these items. These may include making improvements to roofs, pools, or tennis courts, or repairs to roads or parking lots. It is useful and recommended that an HOA board conduct a reserve study, during which an outside expert will anticipate what projects will need to be completed over the next 20 years, and how much money the HOA needs to set aside in order to pay for these projects.
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It may be helpful to enlist the help of experts – such as an attorney, accountant, or HOA manager – to make sure your budget is up to par with your governing documents and that you understand the laws relating to your budget.
It’s the responsibility of the HOA board to protect, enhance, and maintain the homeowners association. All of the pieces and parts that keep the Association a safe and enjoyable place to live, as well as planning well for next year's budget and for the future of the Association, should all be a part of the budget and clearly understood by the HOA board members.