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Finalizing Your 2023 Budget and Preparing for Annual Review

As we head into November, the new year draws nearer each day. For an HOA community, that means that the countdown has begun to finalize your budget for the upcoming fiscal year and prepare for your organization’s annual review.

One of the key responsibilities of an HOA board is to effectively and responsibly manage the association’s funds. This is done through budgeting. Creating an accurate and realistic budget for each year is the key to ensuring that the HOA is prepared for both the fixed costs of operation as well as an adequate reserve for any emergencies that may come up.

In addition to budgeting, another aspect of your year-end preparations may be to create an annual report. After an internal annual review is conducted for budget development purposes, that information can be used to create this report. Many HOAs produce an annual report at the conclusion of each year, which provides homeowners with a comprehensive picture of the association’s finances as well as other important status updates.

Here is what we recommend while creating your 2023 budget and preparing for your annual review and report:

  • Allocate enough time. (If you’re beginning the budgeting process now, you’re probably too late! In that case, make sure to a mental note for next year to start the process closer to August to be sure you have enough time to complete, review, and double or triple check that everything looks good before seeking approval and moving forward with financial preparations for the new year.)
  • Ensure you are including all costs. This can be done by first identifying all the categories of costs you experience on a yearly basis and then listing each specific cost within those categories. These could include administrative expenses like fees for accounting and legal services, management, office expenses, and more; operating expenses for common area maintenance and supplies like landscaping, cleaning, and utilities like electricity, gas, water, sewer, and trash removal; and fixed costs including federal income taxes, property taxes, insurance, and more.
  • Reference your HOA community’s governing documents. HOAs are governed by many laws and guidelines and it is important to make sure your budget adheres to them. These guidelines often include specific details about the preparation and distribution of the HOAs budget, as well as requirements for service and maintenance that the association needs to provide (and therefore needs to include in the budget).
  • Develop a comprehensive schedule with deadlines. Specify dates for important parts of the process including approvals and ratifications. This will keep you on track for success within the appropriate time frame. 
  • Check your records. Revisit the budgets and actual spending from previous fiscal years, paying special attention to things like utility bills and contracts with contractors and/or vendors. This data is instrumental in developing a clear and accurate budget.
  • Review your reserve study and fund analysis. An HOA’s reserve fund is one of the most important elements of the budget, as there are laws that dictate how much money must be specifically allocated in these accounts so the association to make necessary repairs and replacements of communal areas and items including streets, sidewalks, streetlights, pools, parks, and more.

Please take a look at our August blog for an overview of the key steps to developing and finalizing your association’s budget for the upcoming year. You can also reach out to our Director of Community Management – Association Manager, Dominic Cirillo, for additional insight about this topic.

Atlantic & Pacific Management has over 40 years of experience managing HOA communities throughout San Diego, making us a premier service provider to associations throughout the county. If you’re interested in a change of management for your HOA, we will provide an in-depth analysis of your association’s service provider and identify where we can help you strengthen your processes and procedures.

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