2024 Budgeting for small HOAs
MicroMike knows how board volunteers feel about budgeting!!
Ten takeaways from our annual board budgeting sessions
The annual budget planning process for a small HOA is not complicated. But it does take some focused planning and diligence to get it done. We want to help board members of small HOAs with this important duty. Here are ten takeaways from MicroHOA’s budgeting class for our volunteer board leaders.
1. Prepare: Gather your past year financial reports. Pull from your board portal or records: Current year budget; Projected/actual expense report.
Assess the common areas to determine if maintenance is needed.
2. Review the current budget, and two years prior if available.
Review your projected v. actual report if your HOA has data available. If not yet available, review any invoices or costs from the past year.
Review your HOA’s General Common Elements in your declarations. Expenses for all GCEs should be in the HOA budget.
3. Project next year’s costs:
Ask your current vendors if they will continue their current rate or if they have rate or fee changes planned. If you don’t ask, plan on a fee increase.
Insurance: If your policy has renewed since the last budget year, you already have this information. If your policy hasn't renewed, ask your agent for a projection of rate increase. If you don’t ask, plan on minimum 15% increase.
If common area maintenance is needed, request or determine an estimate.
Shared utilities: If shared utilities are a fixed item in the budget (not metered and billed in addition to assessments), are projections meeting actual billing? Are rate increases expected?
4. If you have reserves: Reserves are funds being set aside for future big-ticket expenses. This amount is determined by the reserve study. If you have a current reserve study, boards should stick to what the reserve study determined should be contributed for reserve contributions.
5. Consider: Consider what owners have requested, or what needs should be included.
Will anything change in your community, or in your area that may increase or reduce costs?
Do you have current funding shortfalls?
Do you have a reasonable contingency fund? Contingency fund needs may include consulting services that the board requires, or small improvement or administrative projects not maintenance related.
Do you have severe owner assessment delinquencies which may cause the HOA to be unable to meet operating or reserve contributions?
Are you anticipating legal needs?
6. Compile the budget:
On the budget worksheet provided in MicroHOA’s budget materials, enter the amount projected for each line item.
If the line item is not a part of your budget, leave it blank or delete the row.
The spreadsheet provided in MicroHOA’s budget materials is configured to auto-sum your entries to determine totals.
After all entries are made, the spreadsheet will total the projected expenses of the association.
7. Determine total revenue:
Determine revenue required to meet expenses. Revenue projection should meet the total projected expenses.
Enter revenue on the revenue sheet of your budget planning worksheet.
8. Unit distribution: Distribute required revenue to units according to unit share of expense obligation. The share of unit distribution is found in your declaration. Many HOAs costs are distributed equally between units, but some are divided differently, so confirm that for your HOA.
9. Adoption. Hold a meeting to adopt or record. Take meeting minutes and record them in the association records. Review the section of your bylaws about adoption and meetings.
10. Distribute to owners. Follow the notice requirements in your bylaws.
Remember: It is important to be diligent in the HOA’s budget preparation. But there is a disclaimer at the bottom of the budget spreadsheet: ‘This is an estimate, prepared with due care. ‘ You’re a volunteer, and if you follow clear process, you’ve done your best.
Further information, guidance, and discussion of the budget process for your small HOA is a part of our budget work session.
Some states have additional requirements for the budget process. MicroHOA will provide guidance if applicable to your association.
