There is perhaps no task more important than protecting the financial health of your HOA or condo association. Every board member has a fiduciary responsibility to always do what’s in the best interest of the community. Failure to create, maintain, and communicate financial processes and reporting can result in long-lasting damage to property values and your HOA or condo association’s reputation.
More often than not, disputes, controversies, and negative impacts are caused by poor financial management rather than deliberate deception and fraud. Identifying and combating fraud is another topic altogether.
If you’re a board member tasked with financial responsibilities it can be tough. Even small HOA and condo buildings have complex financial processes and reporting requirements. Add to this the volunteer nature of board membership, and financial missteps — intentional or not — are not hard to imagine.
Financial Management Tips
- Start Early. Every community situation is different, but one rule stays the same: don’t wait until the month before to start the budget process or you’re asking for complications.
- Understand the Methodology. If you have limited financial management experience, it’s important to familiarize yourself with basic accounting terms and then educate yourself on how your community association does its accounting.
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- Accrual. An accrual approach offers the best window into the financial activities of a community, as revenue and expenses are reported when they are incurred, not when money is actually exchanged. The balance sheet includes an accounts payable section, and as money changes hands, the payable section goes down, as does the cash balance. Similarly, revenue is recorded when it’s earned with an assessment receivable and cash balance accounts increasing as money is actually exchanged.
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- Modified-Accrual. This is a hybrid approach between accrual accounting and cash accounting. The essential difference is that revenues get recorded when earned, not when received and expenses are recorded when money is exchanged.
- Cash. Revenue and expenses are only recorded when they are received or paid (when money changes hands), respectively.
- Modified-Accrual. This is a hybrid approach between accrual accounting and cash accounting. The essential difference is that revenues get recorded when earned, not when received and expenses are recorded when money is exchanged.
- Have a Process and a Plan. It’s critical to have a budgeting process. What’s also important is to have a plan or strategy. Develop a business plan for the coming fiscal year that includes goals the community would like to accomplish. Then, map out when costs are likely to occur during the year, which will help you shape your monthly budget.
- Always Get the Board’s Buy-In. If you’re the board president, treasurer, or are in charge of accounting and finances, it’s critical to get the rest of the board to buy in on the methodology of choice and the process by which data is gathered, entered, and disseminated. It only takes a few rogue board members to really muddle up the budget and financial statements with bad data or not engage in the approved process.
- Be Transparent. Once the budget is completed and the HOA fees are determined, communicate with your homeowners. Invite them to be involved and to comment. Be available and responsive to questions and concerns. Without clear communication, all of your hard work could be undermined by confusion and unrest among your homeowners. Produce an accurate and understandable financial statement that can be distributed as needed to enhance transparency and build trust among constituents.
Here are some basics that are found in typical HOA financial documents according to HOA Leader:
- A balance sheet showing account balances
- An income statement
- Receivables, which could include money due to the association from sources like collections, credits from vendors, or homeowner fees
- Bank statements
- A general ledger showing all account activity
- Reserve fund balances
- Seek Internal Help Quickly. Address possible financial issues thoughtfully but quickly; raise alarm bells with fellow board members and communicate with residents. Keeping things too close to the vest will allow financial issues to fester and will cause ill will among fellow board members and your neighbors.
- Get Outside Help. This is perhaps the most important step an HOA or condo association community can take to ensure its financial and community health, which are inextricably linked. Successful and well-respected community management firms can help your community in many ways, but strong, transparent financial management might be the most important service they offer. The best community management firms offer dedicated accounting experts, deploy sophisticated financial software programs, and provide residents with online access for payments and important documents.
The bottom line is that HOAs and condo associations, whether 30 or 2,000 units, are complex business entities run by board volunteers with other jobs and responsibilities. Many boards do fantastic, amazing work on their own, but the time always comes — whether the community expands or board members come and go — when the best move is to partner with a reputable, experienced community management firm that can empower the board to capitalize on its collective strengths while it handles the day-to-day operations of the neighborhood.
Whether you’re looking for your first community management partner or seeking a new one, compare our reputation, experience, and comprehensive suite of services with the competition. We have an outstanding track record of successful, long-term community management relationships. At Comsource, we’ve worked with scores of Maryland HOA and condo association communities to improve the lives of their residents by leveraging our experience and technological expertise. Reach out to us today. Let’s talk.
Tags: community association volunteering, community management role, HOA Finance, Condo Association Management, HOA Administration
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