What's the best way to make a budget?

I'm new to HOAs, and I am trying to understand the entire process that board members have to go through financially. That being said, what do boards have to consider when making their yearly budgets?

I tried doing some research on my own, and stumbled across a few sites that seemed to have good information, but I'm just not certain if there is more I need to know. If you have any tips or pointers, that would be great!

Thanks!

P.S. Here are the sites I came across. They seem to be pretty informative, but I just want to be sure.

http://www.echo-ca.org/article/3-crucial-steps-prepare-budget-homeowners-associations

http://camblog.topssoft.com/bid/307355/8-Easy-Steps-to-Prepare-Budgets-for-your-Community-Association-s

Welcome to HOATalk, Sara. You've fpund a couple of nice sites. But since you're in CA, I think davis-stirling.com is really good for you because there is legislation in each state that's different about HOAs & budgets. At the Echo site, you've seen reference to the Davis-Stirling Act. Well, the website above is compelled by HOA attorneys and along with the ins & outs of the D-S Act, if offers all kinds of advice. For instance, go to davis-stirling.com, click on Main Index, scroll to Budge & click on it, scroll down that menu to "Sample Budgets," where you'll see a few to help guide you.

Are you on the Board? What size is your HOA? Budgets, of course, can vary based on the size & complexity of your HOA. Some only have a few items, e.g., insurance, maybe trash pickup, common area water, landscapers. Others have literally dozens.

Sara,

The basic steps are:

1) Add up the known expenses (trash service, landscaping, MC, insurance, etc)

2) Add up the expected expenses or how much the Board believes should be spent in certain areas (tree pruning, legal fees, taxes, administrative costs (printing, envelopes, postage, etc.) etc.

3) Add up the expected expenses for planned maintenance or repairs (based off of the reserve study).

4) Add up what the Association has obligated to transfer into the Reserve account (we use our savings account for the reserves).

5) Add together the amounts from 1-4 above.

This tells the Association what the expected expenses are.

Now to determine the amount of assessments needed for the year:

a) Add up the expected amount that will be transferred from the reserves (typically this will equal #3 above) into the operating budget (this is our checking account).

b) Use your best guess for other income, like disclosure packages (for example, our Association typically has 5 houses sell each year. So 5 disclosure packages will be needed at $100 per package).

c) Total up a & b

d) Subtract c from number 5 above. This will tell the Association the amount of assessments needed to cover the expected expenses.

Divide the answer from d) by the number of lots and you now have the annual assessment for each lot.

I've attached a copy of our Treasurers proposal to the Board. This may help illustrate the steps I've listed above.

Again, these are the basic steps. When you actually get into the details, it can be a little more confusing. Some of the budget process is simply educated guesses based on terms in contracts, inflation rates, financial history, etc.

Hope this helps,

Tim

All good questions Tim. Sara has a lot of quick learning to do. Rather than take her through the steps as you have nicely done, I thought I would try to get a sense of the proportion/balance of allocations in her community. I could have asked many questions about reserves, but the easiest one for Sara to answer is what proportion is allocated to Reserves. Based on her answers, I would have made suggestions on where she might invest her energies first. If this is all new to her, it can be overwhelming. But to list 5 or 6 items and their proportion is easy for anyone to do, and is in my opinion a good place for Sara to start learning about her HOA's budget & finances.