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9 Tips to Consider when Developing your HOA Budget

08/01/2017 11:58 AM | Anonymous member (Administrator)

By Melanie L. Millage, BA, CMCA, CAM, TMMC

Budget season is quickly approaching.  As a Board Member or Community Manager there are many factors to consider when developing the budget for your Homeowner’s Association.  

  1. Operating vs. Reserves – It is important to understand the difference between the Association’s Operating and Reserve budgets.  The Operating budget is for every-day, recurring expenses, expenses that will repeat annually (or bi-annually).  For example – landscaping, community management, insurance, utilities, and general maintenance of common areas.  The Reserve budget is for repair or replacement of major components such as asphalt, roofs, pool deck resurfacing, fence replacement, and boilers.  Many Association’s will have Reserve Studies conducted (please see your SB-100 Reserve Study policy for your Association’s requirements on a Reserve Study), which is a great guide for determining what items belong in the Reserve budget.  
  2. Start with Expenses – It is important to start with your expenses when building a budget.  Your assessment rates are set based on your budgetary needs.  Once you build your Operating expenses and Reserve contribution needs (see #6 Reserve Studies below), you will base the rate of assessment to cover the expenditures.  
  3. Contracts – Contracts are a good place to start when looking at your expenses, as they can be concrete figures to place in your budget.  Review existing contracts to see if there are incremental or percentage increases set forth in the terms (these increases can even occur mid-year).  If the contract is expiring, will you be re-negotiating or send out request for proposals (RFPs)?  Contracts should be solidified in advance whenever feasible.  Having your contracts set prior to finalizing the budget will allow for a more accurate representation of the budgeted figures as they often represent some of the largest expenses incurred by the Association.  
  4. Historical Figures – Review the historical figures of each account.  Do you see a pattern?  It is important that you not just average, but also look at each individual general ledger account for the years that you are reviewing to see if there were any anomalies to consider.  Also, ensure that when reviewing the accounts from prior years, that you have a good understanding of what the expenses were as some budgeted items will be very specific rather than repetitive (i.e. in the bad debt accounts, your amount can vary based on your current accounts receivable, the condition of the market, where the attorney is in the collection process, etc.)
  5. Projected Increases – Sometimes there are not set increases in written form as the work is not a contracted rate.  Call the providers and see if they are able to provide estimated rates for the upcoming year.  For example utilities; rates for some utility companies are not set for the upcoming year until February, but the departments sometimes will provide you with a range or projected monetary or per unit/service increase that you can use to estimate your budget necessity.  
  6. Reserve Studies and Budgeting for Reserve Expenses – Reserve Studies are an important tool to analyze the repair and replacement needs of major components in the Association.  A reserve study projects the remaining useful life of these existing components and the future cost to repair or replace them.  This tool allows you to review upcoming project needs and budget for the year’s planned repairs and replacements.  If projects are not completed in the suggested year from the reserve study, make sure that it is carried forward for review in the following year.  It is important when planning for upcoming Reserve expenses that the reserve funding is examined.  If the Association is not properly funded, the Board may need to consider postponing projects, increasing assessments to cover the expense, and/or looking into a special assessment.  If the funding is available to complete the projects determined for the upcoming year, then you can include the amount listed in the reserve study as the budgeted amount, OR even better send out RFPs and get bid proposals for the work.
  7. Don’t Straight Line the Figures – It is so simple to straight line a budget, right?  And what does it matter when the year-end figures are close?  It is important on a monthly basis for Associations to review their Budget vs Actual reports to see the financial position they are in, including the cash flow position.  For example, if your $24k insurance payment is due and paid in February, but you straight-line $2k/month, your bottom line net income will look like you are over budget by $20k in February – which is NOT accurate.   Depending on the financial stability of the association, adjustments may need to be made mid-year (postponing projects, re-negotiating contracts, etc.) in order to maintain proper cash-flow.  So it is important to estimate the timing of expenses as you expect them to be incurred (not just averaged across the board).
  8. Income – Once expenses are ironed out, put in known income other than assessments.  These would be items such as rental income and sub-association assessments.  Some Associations also will include late fees, covenant fines and other “soft income” (meaning income that can be waived or negotiated by the Board).   Once these income accounts are set, it is time to determine the assessment rate to cover the difference.  If an assessment increase is determined, please be cognizant of restrictions on assessment increases, as some governing documents cap a maximum assessment rate or have a maximum increase allowed per year.
  9. Keep an Assumption Log and Notes – At its simplest, a budget creates projections by adding assumptions to current data (Harvard Business Review Staff, The Right Way to Prepare Your Budget, Web. 20, June 2015).  While building your budget, make sure to take notes and keep record of your assumptions.  This will allow for the reviewers to easily understand the figures used and allow for questions to be answered.  It will also make future year budgeting easier and quicker to understand how and why prior years’ numbers were determined.

Melanie L. Millage, BA, CMCA, CAM

Director of Operations

TMMC Property Management


TMMC has been providing HOA Community Management Services to our local communities for over 20 years.  TMMC is dedicated to transforming HOA Community Management through our commitment to professional standards, education and relationships – acting with honesty, integrity and transparency.  Melanie can be reached at

(303) 585-0367

Click here for email


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