A smoothly run homeowners association proactively plans and tracks financial transactions. By not having proper systems in place or not having someone vigilantly keeping track of records, things can go south really fast. Here are some tips to protect your association’s money and improve overall HOA financial stability.
The Keys to HOA Financial Stability Explained
Everyone strives to become financially stable, even homeowners associations. Unfortunately, the road to HOA financial stability can be bumpy, especially if you have no idea what you are doing. Thankfully, there are some pointers you can adopt to make things easier. Achieve financial freedom in your HOA by following these tips:
1. Improve HOA Financial Records
Currently, there are three different types of accounting methods that an HOA can use. Although Cash and Modified Accrual methods can be used for interim financial reporting, the best accounting method is Accrual.
Use this basis of accounting for accurate and up-to-date reporting.
Of course, the accuracy of your financial records does not solely depend on the method you use. You must diligently take down all financial transactions, careful not to overlook even one. It is also a good idea to give yourself enough time to prepare financial reports.
Allow yourself 30 days before the end of the fiscal year. That way, when it is time to prepare your HOA budget, you have everything in order.
2. Plan a Sound Budget
Speaking of your budget, it is important to pay close attention to projections for the year. When budgeting for the coming year, look back on financial reports of the past 3 years. See if you can spot any trends that are worth noting and adjust your budget accordingly.
It would also do you well to anticipate changes beyond your control and budget for them, as well. For instance, wages may increase and the inflation rate may shoot up.
Your HOA budget is the basis of your monthly assessments. Without it, you will not know how much to charge homeowners. If you underestimate your budget, it could give rise to special assessments for emergencies.
3. Perform Regular Audits
Most HOA board members shudder at the thought of a financial audit because of the sheer amount of work involved. However, audits are necessary precursors to HOA financial stability.
But, what is an audit anyway? Simply put, it is a thorough examination of an organization’s financials.
You do not have to perform the audit yourself. In fact, an outside professional must conduct the audit to give you a big-picture look at your HOA’s financial health.
As for how often audits must take place, it depends on state laws and your HOA’s governing documents. Check your CC&Rs to see if there are any provisions regarding audits. Generally, though, the recommendation is to perform an audit every year to assess the financial stability of your HOA.
4. Choose a Bank That Works with Associations
One thing most people may not realize is that not all banks are used to working with HOAs. With some of the special needs that an HOA needs with their finances — such as keeping track of deposits and checks — a bank catering to these associations is vital.
A common scenario HOAs experience is homeowners paying their dues using a coupon but forgetting to include it in the envelope sent to the P.O. Box or bank. A bank that is experienced with homeowners associations will note that the coupon was missing in the deposit and alert the HOA.
If a typical bank was used, HOA staff members must figure out why fees were short and who to contact to get the appropriate coupon. Although it may seem small, having this extra help is important to a financially stable HOA.
5. Evaluate Expenses
Nobody wants to pay staggering fees, homeowners included. While it is normal to raise HOA dues, it is better to avoid increases altogether, so long as it does not sacrifice the community’s well-being. A good way to do this is to cut back on some expenses to save money.
Evaluate your HOA’s expenditures to see if there are any you can cut back on. See where you can save money on vendor contracts, property maintenance, legal costs, and utilities. You can even ask your vendors for discounts. Just save a little here and there — it will all add up in the end.
6. Talk to Your Accountant
A financially stable homeowners association can never be without a reliable accountant. Accountants can help you make crucial financial decisions, evaluate reports, and make sure your records are accurate. They can even help you with reserve funds planning and look for areas where you can save money. When hiring an accountant, it is best to go with one outside of your HOA so that you can get advice from someone with a different point of view.
7. Maximize Reserve Fund Investments
Reserve fund investments are critical to association financial stability. Apart from ensuring you always have enough money for emergencies, reserve funds planning involves making the right investments.
Your HOA’s finances are not for personal use. If you tend to be a risky investor, do not gamble with your HOA’s funds. It is best to stay away from risky investments. This way, you can protect your HOA’s money and maximize returns.
8. Stay Transparent
There is nothing worse than an HOA that does not seem to be there. Homeowners hate feeling out of the loop. As a board member, you must ensure transparency is held to a high degree in your association.
Let homeowners know where their money is going. By constantly doing so, you can build trust between the board and the community members. In the end, residents will be more understanding should emergencies require special assessments.
Protect Your Finances for a Better Future
Every HOA must safeguard its finances, but not all HOAs are equipped with the right expertise to do so. Most HOA boards are composed of volunteers with other full-time jobs and parenting duties. Luckily, it is not that difficult to keep your association’s finances secure. With these tips in mind, HOA financial stability is just one step away.
If you are still having trouble with your HOA’s finances, it may be time to contact a professional for help. In that case, give us a call anytime.
- 6 Practical Reasons Why You Should Outsource HOA Accounting
- What Are The Standard Financial Statements For An HOA?
- 6 Tips To Have A Strong HOA Financial System