Managing an association can be a time-consuming job, especially without HOA financial management services. When all the members of the board of directors are volunteers with full-time jobs, families, and social lives, taking care of the many aspects of property management can be difficult.
HOA Financial Management Services for the Self-Managed Community
An HOA board is typically made up of volunteers who often have other priorities. Sometimes, though, it can become too much. Before long, details can start to fall through the cracks. For smaller communities, it can be too expensive to hire a full property manager to tackle all aspects of HOA management.
Handling HOA finances is the most complicated and tedious aspect of association management. Thankfully, financial management companies are here to help. There are many benefits to hiring a company to handle just the financial aspects. In addition to saving the board of directors’ time, it can also relieve the stress that goes along with managing sensitive financial information. Ultimately, financial management companies offer much-needed support to homeowners associations for a fraction of the cost of full property managers.
Still on the fence? Here are the top reasons to hire financial management services for your self-managed HOA:
1. Make Collections a Breeze
One of the most time-consuming and important tasks in any community association is the regular billing and collection of HOA dues. Without money coming in, there would be no funding for community maintenance or new projects. Moreover, organizing labor at regular intervals to prepare bills and collect late fees can be hard to manage. As a result, your community will suffer.
HOA financial management services can take away some of that pressure by using their own labor and resources to prepare and send invoices to homeowners. In addition, these companies have teams of trained collection professionals who will work with your board of directors to create and implement a collections program that is right for your community.
2. Handle Payables Easily
Of course, receivables are only one part of financial management for HOAs. A financial management company can also keep track of payables and make sure that all vendor payments go out on time. The last thing a community wants is to go delinquent on payments and lose a vendor account. By leaving payables in the hands of experienced professionals, you never have to worry about missing an important bill again.
3. Detailed HOA Financial Reporting
The key to financial stability in your HOA is to ensure the keeping of detailed records for every dollar that passes through your community. By maintaining detailed records, your board of directors can make more accurate plans regarding the allocation of funds. Keeping up with financial statements such as balance sheets, statements of income, payables & receivables, bank statements, general ledgers, and reserve fund balances require certain expertise. These are best handled by a trained professional to ensure accuracy and give homeowners peace of mind.
You must prepare all financial reports on a regular basis. That interval varies depending on your community’s needs, along with state laws. Generally, it is best to prepare your HOA financial reports monthly or, for larger communities, quarterly. A financial management company can prepare all financial statements correctly and on time. This will help with audits and tax preparations required by law.
4. Get Expert Financial Advice
HOA and condo associations are managed by volunteers. Thus, it is common for them to have questions regarding the complicated nature of association finances. Not every community has a trained accountant available to assist with financial planning. Hiring a financial management company provides communities easy access to professionals to ensure that they are handling their finances properly and legally.
Taxes and audits can be some of the most stressful times for community associations. With so many rules to follow, it is hard to know for sure if everything is properly prepared. With HOA financial management services, trained professionals will be right by your side.
They will prepare all financial documentation and walk you step-by-step through the tax preparation and audit process. Don’t worry about the preparation of 1099s, employer tax forms, and other forms and reports for governmental agencies. Beyond that, they will answer any questions and make sure that there are no surprises.
5. Homeowner Communication Services
Along with handling all association financial information, a financial management company can also assist with homeowner communication. A custom website will allow easy access to community information and allow for online bill payment. Residents can also use the website to request information or communicate with community management. Furthermore, association documents can be posted online to promote transparency between the board of directors and the homeowners.
In addition to the website, these financial management services also provide email, voice, and text messaging support. This way, the board can quickly and easily stay in touch with homeowners. After all, email blasts are an effective way to keep residents up to date on all community matters.
6. HOA Insurance Assistance
Insurance can be one of the largest expenses that a community must prepare for. Luckily, professionals typically work with some of the nation’s largest and most trusted insurance agencies. Therefore, they can help find a tailor-made policy for your community. Whether it is made up of single-family homes, townhomes, or condominiums, financial management companies can find a plan that fits in your budget. Additionally, companies like these can assist you in finding the best prices available.
7. Annual Budget Preparation
Planning your annual budget can be a tough ask, especially if you’re not used to it. With professional services, you can get help with estimations and budgeting. This will give you a more accurate budget to work with. An accurate budget also means accurate fee calculation, which won’t put your HOA in a budget deficit.
8. Internal Controls
Having internal controls is critical to protecting your HOA’s funds. An HOA financial management company can help you establish these controls and monitor them accordingly. This way, you can ensure that the association’s money is safeguard and that no one has complete control over the finances. The management company can keep board members in check and vice versa.
9. Customized HOA Services
Of course, no two communities are the same. Each one has different needs and goals. Maybe you are trying to save up enough reserves for a community pool. Or perhaps you are just starting out and need help setting up financial reporting procedures. Trained professionals will work with your board of directors to get to know your community. After that, they can create a customized financial plan to assist you in reaching your unique goals.
The Disadvantages of Self-Managing HOA Finances
It can be tempting for HOA board members to try and handle all aspects of association management themselves. The need for management can depend on the HOA, but there are a few areas where board members should be more cautious — like the community’s finances.
Although it’s up to your board whether or not you handle finances yourselves, and there’s a possibility it will work out fine, there are also some major risks an association can face by trying to take on HOA finances without outside help.
Here are the downsides to self-managing HOA finances:
1. Board Members Aren’t Financial Experts
The range of experience on an HOA board can really vary. But, unless you have members who are accountants or lawyers, most board members won’t have specific backgrounds in working with HOA finances — and there’s a lot to know. For example, if details like issuing 1099 forms to vendors at the end of the year, handling financial statements, or managing audits aren’t handled properly, the mistakes can end up being very costly for the association. Plus, most members aren’t used to the level of budget tracking and accounting processes that come with association management.
In addition, it’s not that uncommon for board members, especially new board members, to spend money that the association doesn’t actually have to work with. They might get too caught up with what homeowners are asking for and not realize the full financial position of the HOA which can affect it within the next five to 10 years.
Consider an unexpected project or repair coming up, such as burst pipes during the winter or unforeseen roof repair. Inexperienced board members might be unsure how to weigh the best options for handling the cost. An expert can help them decide what the project warrants from a variety of options, such as borrowing from the reserves or executing special assessments, etc.
These financial details are important since they can tell you whether or not your association is on the right track. They show you whether you need to adjust any areas of cost or expense. The financial statements of your community should be able to give you a good picture of your current status, plus future potential.
Struggling with these types of situations and decisions means you may risk large penalties for the HOA, not to mention a lot of time wasted trying to figure things out.
2. Lack of Time Can Lead to Neglect
Most board directors have busy lives outside of the association, so they don’t have a ton of extra time to devote to management each day. With such limited energy, it is nearly impossible to keep up with details about reserve studies, financial statements, and loan applications. And many board members won’t be able (or willing) to work the extra hours required to handle these thoroughly.
Overall, you must make sure to devote sufficient time to these areas. This way, you won’t neglect anything. Working with a manager can help you pass off those otherwise difficult, boring, and confusing details to an expert ready to handle them.
3. There’s a Higher Risk of Fraud
Keeping up with your HOA’s finances also helps you identify any red flags that might indicate fraud has occurred in the association’s cash flow. This includes reconciling your bank statements with your financial reports. To a board member without an eye for it, they might have trouble identifying what potential fraud looks like.
4. Conflicts of Interest
Sometimes, situations can arise where a board of directors might propose a transaction for the association in which they have a financial interest. This can lead to biases and conflicts of interest during important decision-making about how to spend money. If board members will handle board finances, it’s important to disclose any possible relationships or ties before making any decisions. This includes ties to possible financial transactions, such as contractors, consultants, or accountants.
You’ll want to, at least, have a full accounting system in place for financial reports and for recording all transactions. That includes setting in place checks and balances, such as:
- Not allowing the same person who approves invoices to also write checks
- Requiring all important transactions and checks over a certain amount to have two signatures
- Cutting down on the use of cash transactions
- Not allowing the same person who records receipts to also make deposits
- Paying vendors and employees with a check
- Writing checks to the person you’re paying and not to “cash”
- Deposit checks daily (or store in a safe overnight) directly to the HOA’s financial account
- Making sure all payments to the HOA are addressed to the association (and not a board member or manager)
Choosing the Right HOA Financial Management Company
One of the biggest disadvantages of a self-managed HOA is inexperience, particularly when it comes to finances. As such, it is best to outsource HOA financial management services. This way, you can ensure the financial health of your community.
Not all HOA financial management companies are created equal. State and local laws vary immensely throughout the country. Make sure that the financial management company you select is knowledgeable with your area and provides the services that work best for your unique community.
If you are looking for the right HOA financial management company, Clark Simson Miller is the answer. Call us today at 865.315.7505 or contact us online to learn more!
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