Budgeting is an integral part of every Tacoma, Washington, community association’s operation. Planning the annual budget by calculating expenses is how every HOA decides upon homeowner dues. Inaccurate budgeting at the start of the year could lead to financial struggles for the HOA by the end of the year or in the following years, and further result in the dissatisfaction of residents. To avoid financial disaster, make sure to avoid these five key mistakes when planning your HOA’s budget for the upcoming year.
1. Not Reviewing Past Years’ Budgets
The best way to get an accurate estimate of the upcoming year’s expenses is by viewing the expenses of previous years. Reviewing past years’ financial reports will help you identify trends and anticipate costs for the new year. It will also help you identify mistakes and correct them for the future. Just don’t forget to account for inflation and any changes in vendors that may increase costs.
2. Creating Vague Categories
The more comprehensive and detailed your expense report is, the more accurate it will be in predicting future costs. Avoid lumping categories like landscaping, plumbing, and electrical services together into “maintenance”. Create specific categories for each product and service paid for so you can better track your expenses year-over-year and create more accurate budgets in the years to come. If creating such a detailed report feels too intimidating or time-consuming, reach out to an HOA management firm like The Management Trust about their HOA financial management services.
3. Not Negotiating with Vendors
When it comes time to plan your HOA’s new annual budget, take the time to re-evaluate your vendor contracts as well. Track vendor costs year-over-year, and ask your current vendors if there are any changes to their rates in the year to come. Inquire about any discounts, especially if you have an established reputation and loyalty to the company. If you’re unsatisfied with your vendors or their new rates, look around for new vendors who may offer the same quality for better prices.
4. Failing to Add a Buffer
If there’s one thing that’s inevitable, it’s unexpected expenses. Surprise costs can — and will — pop up at any time, so your budget needs to have some breathing room to cover these costs. Although it can be tempting to try and keep your budget as tight as possible so homeowner dues will be lower — making your residents happy — it’s better to set higher, consistent dues than to land in hot water financially or have to unexpectedly raise dues later in the year. It’s better to end up with a surplus of money at the end of the year than a deficit. Any excess funds can be placed in the HOA reserve fund for emergency costs in future years.
5. Settling for Cheap Insurance Policies
Cutting corners to save money is never a good idea, and in no area is this more true than HOA insurance. If you face costly expenses due to legal ramifications, natural disasters, or any other range of issues, insurance can help soften the blow and significantly reduce the amount of financial stress placed on your community association. Choosing the cheapest insurance policies that don’t offer adequate coverage may save you money in the short term, but that savings will likely be blown out of the water by the first issue you encounter that you must pay out of pocket for. It’s always better to be safe than sorry and invest in a good insurance policy that offers adequate coverage for your Tacoma, WA, HOA.
Financial planning and budgeting are some of the most important aspects of an HOA’s successful operation. It’s the number one area where you need to dedicate diligence and ensure accuracy, or you risk placing unnecessary financial stress on your community association and its residents. Luckily, most community association management firms such as The Management Trust offer comprehensive HOA financial management services including record keeping services and budget preparation. If you’d like more information about The Management Trust’s full range of community management services, including HOA financial management, give us a call at (253) 472-0825 or fill out our online contact form today.