How to Help Your Clients’ HOAs Prepare Annual Budgets
Each year, a homeowner association (HOA) sets an annual budget. This covers operational costs, projects, upgrades, and maintains the HOA’s reserve fund for emergencies. The HOA’s annual budget is set by the association’s board and voted upon by members.
As an HOA manager, it’s not your responsibility to create an annual budget. However, you may be called upon to assist your clients in an advisory capacity. Your experience and expertise with association finances place you in a unique position to make recommendations for budgeting.
So how can you help your clients’ HOAs prepare their annual budgets? Here are some ways you can provide assistance to the associations you manage. By implementing these best practices for HOA budgets, you’ll be able to provide your clients with stellar service and ensure that they develop the perfect annual budget.
Send Requests for Proposals
First, encourage your clients to send out Requests for Proposals (RFPs), or get their permission to send RFPs on their behalf. An RFP is a statement from each of the HOA’s vendors and service providers which gives an estimate for the coming year’s expenses.
This can include monthly services such as waste disposal, security, and landscaping, as well as vendors the HOA will be hiring for big-picture projects like construction upgrades. RFPs allow you and your clients to get an accurate picture of costs, which is very useful for planning the budget.
Analyze the Reserve Fund
An HOA reserve fund is a savings account or other liquid assets set aside by the association. Reserve funds are the financial backbone of the HOA. They’re used for emergency funds as well as bigger, long term projects approved by the board. However, an HOA may dip into the reserve fund if it has unexpected costs.
Before you assist your HOA client in creating a budget for the coming year, make sure you do a thorough analysis of the reserve fund. Ensure that it’s maintaining the minimum balance and growing steadily. If the reserve fund is in poor financial shape or it’s becoming stagnant, encourage your clients to take this into consideration and allow a higher percentage of next year’s fees to replenish the fund.
Perform an Internal Audit
Next, perform an internal audit. An audit is a detailed review of the HOA’s entire financial picture, from current budgets to balance sheets and investments. It’s important to do an audit because it shows the HOA board where their association is succeeding financially and where they may have made some missteps.
Although audits are often performed by a CPA, they don’t have to be. Using your association accounting software, like CINC Systems, you’ll have the tools you need to calculate your clients’ finances.
Inspect Accounts Payable and Receivable
What’s the status of your client’s accounts payable and receivable? Does the HOA have outstanding bills that still need to be paid? Is it owed money from members who are behind on dues or assessments?
Inspecting the HOA’s accounts payable and accounts receivable gives you a strong sense of the organization’s financial health. Deficits can be calculated into the new annual budget, along with the money that the HOA will receive. This will make financial planning more accurate.
Calculate the HOA’s Projected Income
In general, an HOA’s income takes the form of membership dues paid by residents who live in the community. These dues cover regular monthly expenses, like landscaping, utilities for common areas, security, and waste disposal. A portion of dues also goes to the reserve fund.
Using your CINC Systems payment web portal, where residents can submit their fees online, you’ll be able to extract valuable data about the HOA’s earnings. This allows you to calculate the projected income for the next year as you assist your clients with their new budget.
Calculate the HOA’s Estimated Costs
After you’ve calculated the projected income for the new year, you can calculate costs. Refer to RFPs, accounts payable, previous years’ budgets, and vendor contracts to get this information. This data will enable you to create a fairly accurate snapshot of the costs the HOA can expect.
You can also designate an allotment for prospective new costs, such as expenditures associated with a new project the board will undertake in the new year.
Examine Past Assessments
In HOA terminology, an assessment refers to a special fee paid by residents in addition to their regular dues. Assessments are one-time payments that are levied to cover emergency repairs or other unexpected financial needs. Ideally, HOAs keep assessments to a minimum.
As you assist your clients with their annual budget, examine past assessments. How many assessments have been levied in the past year? The year before that? If the HOA members are paying assessments frequently, it’s a sign that the reserve fund should be bigger and regular dues should be raised.
See the Big Picture
While day-to-day operations like maintenance are important factors to consider when setting an annual budget, remind your clients to see the big picture. What goals do they have for their HOA? Do they want to add upgrades or install new facilities for the community? Do the roads need repaving?
Encouraging the HOA to think about long term projects is very important when discussing an annual budget. When you know your client’s vision, you can help them create a financial plan to pay for it.
Generate Financial Reports
Finally, you can help your clients prepare an annual budget for their HOA by using your association management software’s financial tools. Software like CINC Systems includes a number of great features for HOA accounting. This includes the ability to generate financial reports with the click of a button.
Each report is customizable, so you can include specific data based on categories or time periods. Then, reports can be sent to board members via email. It’s an easy, convenient way to provide your clients with the information they need to make the best decisions for their HOA’s budget.
Prepare Annual HOA Budgets with CINC Systems
To see how CINC Systems can help you assist with your client’s annual HOA budget, click here to request a free software trial.
Related Frequently Asked Questions
- How Can Association Management Companies Working with HOA/COAs Benefit from Association Management Software?
- Top 10 Tips When Managing HOA Accounts
- How Association Managers Benefit from CINC’s Accounting Software
- What Is Association Management Company Accounting Systems?
- Is My Association Management Accounting Data Safe When Using Software Tools?