How to Prepare an HOA Budget: A Step-by-Step Guide with a Free Template

Are you tasked with preparing an HOA budget for the upcoming year? Read this comprehensive guide to discover a systematic approach to budgeting that emphasizes collaboration and transparency. Review past expenses, prioritize future costs, and engage with your community. Download a free template.

10 months ago   •   4 min read

By reTHINK HOA
Budgeting for Your HOA
Table of contents

As we approach the close of the year, many Homeowners Associations (HOAs) find themselves needing to plan for the next one. Regular and well-structured budgeting is vital for the success of any community, and HOAs play a crucial role in maintaining quality and harmony within their neighborhoods. Responsible for the upkeep and maintenance of common areas and amenities, HOAs must prepare an annual pro forma budget that aligns with the community's needs and expectations. This guide will walk you through developing an HOA budget and provide a free template for your use, ensuring your community thrives in the coming year.

Key Points
  • Creating an HOA budget is essential (and may be legally required) for community success, ensuring the maintenance of common areas and alignment with community needs and values.
  • Budgeting involves reviewing past budgets, identifying and prioritizing upcoming expenses, and determining income sources.
  • The budget creation process requires collaboration to draft, adjust, approve, and distribute the final budget to community members.

Review the Previous Year's Budget and Expenses

Step 1: Review the Previous Year's Budget and Expenses

Begin by assessing last year's budget and expenses. Review your Budget Comparison Report and analyze how the HOA spent its funds. Identify areas where the budget might have fallen short. Recognize any unexpected expenses and include a buffer in the new budget to prepare for unforeseen costs in the coming year.

Identify Upcoming Expenses

Step 2: Identify Upcoming Expenses

Understanding past expenses is key to creating a realistic budget. Consider routine maintenance, repairs, and upgrades. Reviewing the HOA's reserve study may be useful at this stage. Consult vendors and other business partners to anticipate rate changes and discuss new projects or initiatives with HOA board members to estimate potential expenses.

Set Priorities

Step 3: Set Priorities

Categorize upcoming expenses by importance, starting with those critical to the community's well-being. Prioritize mandatory expenses like utility payments and insurance premiums, followed by those enhancing the quality of life, such as community events or amenities. Finally, evaluate discretionary expenditures, deciding whether they align with the budget.

Determine Income Sources

Step 4: Determine Income Sources

Examine income sources, primarily homeowners' dues. Compare them with the previous year, and adjust as necessary to reflect any changes.

Create a Draft Budget

Step 5: Create a Draft Budget

With all the above information, it's time to create a draft budget. Download the template at the bottom of this post (sign-in required). Start by entering the HOA's income source. Then enter the anticipated expenses in each expense category. Be sure to include a buffer for unforeseen expenses. Once you have a draft budget, share it with other HOA board members and gather their input. Make any necessary adjustments based on their feedback.

Approve and Distribute the Final Budget

Step 6: Approve and Distribute the Final Budget

Hold a meeting to review and approve the budget with your HOA members. Distribute the proposed budget to community members to illustrate how their dues will enhance their living experience. Once approved, finalize and disseminate the budget.

Additional Information For California HOAs

Unless your HOA's governing documents impose more stringent standards[3]:

  • The annual budget report must be distributed 30-90 days before the end of its fiscal year.
  • The operating budget encompasses all expenses for the fiscal year including contributions to reserves and estimated revenue and expenses on an accrual basis.

Final Thoughts

Creating an HOA budget requires meticulously reviewing past and future expenses, clearly identifying income sources, and strategically prioritizing expenses. With the steps and free template provided here, you can formulate a budget that meets community needs while maintaining financial responsibility. Transparency and collaboration can make this process smooth and comprehensible for all involved.

Footnotes & References

  1. Investopedia. Pro Forma: What It Means and How to Create Pro Forma Financial Statements.
  2. Davis-Stirling.com. Preparing Annual Budgets.
  3. California Legislative Information. Civil Code § 5300 – Pro Forma Operating Budget.
  4. State of California Department of Real Estate. Reserve Study Guidelines for Homeowner Association Budgets.
  5. Community Association Institute. Reserve Requirements and Funding.

Budget Template

To make the process of creating an HOA budget even easier, we've included an HOA budget template. This template contains the essential elements above and provides a clear and organized format for your HOA budget.

Sign-in or Subscribe to download the free template today and set your HOA budget for the coming year.

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