Seven tips for creating a sound budget in your association

What is an HOA budget?

An HOA budget is the association’s financial plan for the year. It estimates expected income, operating expenses, reserve contributions, and other costs so the board can set HOA fees and make informed decisions about the community’s financial needs.

A sound budget should reflect what the association realistically expects to spend, not simply repeat last year’s numbers.
 

South Carolina HOA budgeting requirements

South Carolina doesn’t assign a single sound budgeting process for every HOA, so boards need to look at both state law and their own governing documents.

A few requirements are especially important:

• Notice before certain budget increases: If the HOA is not incorporated under the South Carolina Nonprofit Corporation Act, it generally must give homeowners at least 48 hours’ notice before an HOA meeting where the board will consider increasing the annual budget (S.C. Code § 27-30-140).
   
• Access to the annual budget: Homeowners in associations that are not governed by the South Carolina Nonprofit Corporation Act generally have the right to inspect and copy the association’s annual budget under the HOA Act’s records provisions (S.C. Code § 27-30-150). Learn more in our guide to the South Carolina Homeowners Association Act.
   
• Accounting records for nonprofit HOAs: Associations incorporated under the South Carolina Nonprofit Corporation Act must keep appropriate accounting records (S.C. Code § 33-31-1601(b)).
   
• Annual financial statements: A nonprofit association generally must provide its latest annual financial statements when a member makes a written request. Those statements include a year-end balance sheet and statement of operations (S.C. Code § 33-31-1620).

Because state law does not set detailed requirements for the contents of every HOA budget, boards should review their declaration and bylaws for rules about assessments, budget approval, notice, reserve contributions, or member involvement.
 

Operating budget vs. reserve budget

The operating budget covers the community’s regular expenses, such as landscaping, utilities, insurance, routine maintenance, and management. Reserve funding is set aside for larger components that wear out over time, such as roofs, paving, major equipment, or other capital assets.

A sound budget considers both. Covering today’s bills without planning for tomorrow’s repairs can leave future boards and homeowners with difficult funding decisions.
 

Seven tips for creating a sound budget in your association

Let’s take a look at the basic process for preparing a sound budget that works.

1. Check your operating fund balance.

   The association’s operating fund balance should, at a minimum, equal the costs of one month’s maintenance needs. If you don’t have that amount on hand, you may need to consider an assessment to cover the gap. Don’t use a contingency line item in your budget — it’ll just spell trouble later on.
   
   When assembling this part of the budget, consider every source of revenue you can, which may include consistent enforcement of violations through HOA fines or amenity fees. Just confirm that you’re avoiding unenforceable HOA rules.
    

2. Minimize or eliminate delinquencies.

   Delinquencies are an unfortunate fact of life for associations. As you prepare your budget, consider current expected delinquencies to be bad debt expense. If your association has an aggressive collection practice, you may be able to control delinquencies, but there’s often no way to completely avoid them.
   
   If you charge late fees, charge them consistently. Remember that high receivables put basic services at risk for residents; reminding residents of that risk may help resolve some delinquencies.
    

3. Evaluate expenses.

   While working on your budget, go through each expense line item; avoid the temptation to simply annualize each one from the previous year.
    

4. Be ready for tough decisions — and make them.

   The cold, hard fact is that sound budgeting is when difficult decisions rear their heads. If your association manager provided a list of recommendations in a letter provided with your audited financial statements, this is the time to give consideration to them. You may also want to include a line item in your budget to accommodate accumulated deficit or a potential shortfall.
   
   Alternatively, consider levying a special assessment.
    

5. Take care with your process.

   Sometimes, the manner in which something is accomplished is just as important as the end result. Get board approval for all reserve expenditures, and take a close look at your internal controls to eliminate the possibilities of misappropriation or waste.
    

6. Plan for more than the coming year.

   Every association should have financial plans that look ahead for the next year, as well as three and five years in the future. As a best practice for a sound budget, take this opportunity to review your current vendor list and determine if you need to plan for increases in any fees. This is the best time to anticipate projects that can’t be funded from your current reserves.
   
   A good association management company will have the purchasing power to help you negotiate better rates and fees in some cases.
    

7. Put homeowners first.

   As a rule, avoid politics during the budgeting process. Sound budgeting considerations don’t happen in a vacuum — they can profoundly affect your homeowners, regardless of the type of association you have or property you live in. You’re all involved with your association for the same reason: to maintain and enhance the quality of life for everyone in your community.

A sound budget is more than good practice — it’s the best opportunity to get your association on the right track to financial success and keep it there.
 

About FirstService Residential

As North America’s leading property management company, FirstService Residential serves South Carolina HOAs with local expertise backed by national resources. Our teams support board members with meetings, recordkeeping, financial management, resident communication, and 24/7 customer care. This way, board members can focus on long-term goals instead of day-to-day administration.

Contact a member of our team today to learn more about how we can serve your community.

This information is provided for general informational purposes only and is not intended to constitute, and should not be relied upon as, legal, regulatory, financial, or operational advice, or as a representation or guarantee of any specific services, capabilities, or outcomes. Property management needs, regulatory requirements, market conditions, and available services vary by jurisdiction, property type, and community. FirstService Residential provides services through locally based affiliates and associates, and services and results may vary by community, region, contractual terms, and applicable law.