By Tara Tallaksen / Published September 2022
Homeowner association board members play a vital role in managing their communities, but most importantly, they establish the annual budgeting plan. Budgeting helps board members manage their association’s overall finances throughout the span of a year for expenses and community projects. At Vesta, we understand that creating a budget plan can be tedious and overwhelming, especially when trying to align with the correct legal processes. Fortunately, there are numerous tips and tricks out there to help alleviate the budgeting pressures.
The most crucial budget practice for board members is to truly understand what the homeowner association’s budget is and the purpose of having this in place. Having a comprehensive understanding of what the budget is made for can help board members establish an adequate expense plan. For example, if your board agrees on budgeting for an amenity project, then you’ll need to create a pro forma budget to predict the costs of the project. Additionally, the purpose of having budgeting plans is to help keep track of community finances and protect the housing values on the property. Budgets can help preserve your property values by maintaining the community’s environment.
Another important budgeting practice is to be strategic. It’s imperative to have an annual budget created for all potential expenses within the year. However, to be strategic, board members should also consider establishing a longer budgeting plan for the foreseeable future. In other words, it would be beneficial to make a budgeting plan for the next three to five years in addition to the annual plan. This can help board members prepare their communities for any big future projects. Vendor services are also common to plan for within the annual budget. Regarding vendor services, it’s strategically important for board members to analyze contracts and proposal requests as that can help the board find the best vendor within their realm.
Minimizing delinquencies can also help with budgeting. Unfortunately, every association has delinquencies from homeowners being late in paying or unable to pay their dues. In order to properly budget this in financial plans, board members should refer to delinquency expenses as bad debt. This will help to offset these expenses and keep the association’s budget intact. Although delinquencies are challenging to permanently eliminate, they can be decreased. To help minimize delinquencies in associations, board members can implement collection policies that enforce fees for paying dues late or not at all. This will potentially give incentive to residents to pay their dues in a timely manner and reduce excessive delinquencies.
Additionally, keeping track of reserve funds is important when budgeting. With reserve funds being responsible for community repairs and replacements, it’s beneficial to have reserve fund studies regularly. Trained professionals conduct the reserve fund studies and report the information to the board members. These studies can inform board members on the current amount of funds, analyze the expected cost of future repairs to the community, and determine the longevity of the funds. This helps board members understand what to expect in terms of future maintenance expenses. If board members choose not to conduct reserve fund studies, then their association will risk a higher chance of depleted funds to pay for community upkeep.
Lastly, following the homeowner association’s rules is key to financial planning. Board members need to examine their association’s governing documents and state laws to understand what is legally expected of them. Governing documents can be classified as the declaration of covenants, the articles of incorporation, bylaws, and rules and regulations. Association laws can vary state to state, so it’s very important for board members to research their local association legal obligations. If board members do not act in accordance with such rules, then legal consequences may happen to the association and the board.
Overall, homeowner association board members play a vital role in community management as they create the association’s annual budget. Budgeting may seem overwhelming at first, but our practices aim to make the budget process go smoothly and efficiently.
Marketing and Sales Assistant, Vesta Property Services
Tara Tallaksen is the marketing and sales assistant at Vesta Property Services. She started working for Vesta in amenities as a lifeguard supervisor for about a year before transitioning into her corporate office position. Tara graduated from the University of Florida with her bachelor’s degree. She enjoys exercising and is a certified personal trainer. She plans on continuing her career in marketing and is always willing to learn more about the field. Vesta’s great career opportunities, team support, and diverse trainings can help Tara achieve her professional and personal goals. For more information on Vesta Property Services, email email@example.com, call (877) 988-3782, or visit VestaPropertyServices.com.