Keeping your HOA financially stable is important for a number of reasons. It’s necessary for your community to be healthy and reputable. Without solid financials, you’ll have a hard time convincing people to buy in the community.
This is one of the best reasons to hire an HOA management company. You’ll leverage accounting systems, software, and technology that keeps your financial planning and reporting accurate, detailed, and transparent.
Your homeowners expect a balanced budget, a healthy reserve, and good financial stewardship.
Here are some of the ways that you can improve the financial stability of your HOA.
Start with a Complete Financial Audit
Before you can improve your financial health, you need to know where you stand. A total audit of your HOA finances is a perfect place to start. If you’re uncomfortable with the word audit, call it an assessment. The idea is to look at where you are and where there’s room to improve.
Evaluate your balance sheet, cash disbursements ledger, and all of the income and expenses associated with your community. Every transaction should be carefully documented. Look at your current budget and your reserves. Check the cash that’s available in your operating account. Where are you financially right now?
Some of the most important data to collect will be:
- What are vendors costing you on a monthly, quarterly, and annual basis? Are you able to pay them on time and are the costs fixed, variable, or both?
- How much debt does the association carry?
- Do your expenses conform to your budget?
- Are there outstanding collections or dues and do other payments come in on time?
- Do you have enough reserve funds?
A routine audit of your HOA’s financial documents can help you notice healthy patterns as well as irregularities. All expenses will be accounted for during your audit, ensuring that funds are spent and earned as per the board’s projection and approval.
Who should conduct this audit?
Consider hiring an expert to conduct the audit and provide professional advice on the financial procedures you’re currently using. There might be a better way to do things that will simplify your financial reporting and keep it more accurate and accountable. Your auditor will also identify weaknesses in your accounting processes.
Better Budget Management for HOAs
Annual projections will drive the decisions your HOA board makes about spending.
As you’re budgeting for the coming year, there are two important tips that can help you create a better budget:
- Look at the financial reports of your last three to five years. Check for trends that are worth noting and adjust your budget accordingly. Consider, also, how inflation has changed what you’ve spent on things like electricity, water, maintenance services, landscaping, pest control, and other contracts. You may not have included space for higher costs and even if you did, it might have been impossible to project just how high general prices would jump. Make sure your next budget reflects the inflationary cost of goods and services your community needs.
- Consider your monthly assessments. You’ll use your budget to decide how much to charge your homeowners. However, you’ll also need to know what you have coming in when you’re trying to budget. How reliable are your homeowners in paying their dues and assessments on time? Without a good budget, you will not know how much to charge homeowners. If you budget for less than what you need, it could give rise to special assessments for emergencies.
Collections and HOAs in California
Whether you collect them monthly, quarterly, or annually, the HOA fees your members pay are really what drive your association’s ability to function. When your members fail to pay their fees on time, the budget will suffer. So will the community.
Your association’s operations would be seriously compromised if fees weren’t collected regularly. Improve your financial stability by keeping your collections consistent and your homeowners accountable. Here are some of the mechanisms that may help:
- Provide online payment portals. This cuts down on late and missing payments.
- Hold homeowners accountable for on-time payments. Monitor accounts regularly and send out delinquency notices.
- Set deadlines and expectations for your homeowners.
- Create financial transparency. Share the annual budget and all meeting minutes.
- Delegate the collection duties to your HOA management company or a third party that makes it less emotional for board members who are tasked with collecting from their neighbors.
It’s important to enforce all of your collection policies consistently.
Improve Your Reserve Funds
The financial stability of your HOA also depends on the reserve funds you can access if necessary.
Reserve fund investments will ensure you always have enough money for emergencies. Make sure you’re getting good advice on how to invest your reserve funds. There’s a time and place for risky investments, but those investments should never involve your reserve funds. Look for something stable and substantive when you’re investing those reserves. Talk to an asset manager who can protect your HOA’s money and maximize its returns.
If you’re thinking about borrowing, make sure you understand the true cost of those loans. Increasing the strength of your reserves is always a good move, but not if it’s going to cripple your operating budget with debt payments you cannot afford.
Finally, make sure you’re outsourcing your accounting and bookkeeping. If you’re working with an HOA property management company, they can likely take care of the financial reporting and documentation. If you’re not already working with an HOA management company, improving your HOA’s financial stability is a good reason to start. You can also access expertise and support from a professional accountant who specializes in HOAs.
Every HOA must safeguard its finances, but not all HOAs are equipped with the right expertise to do so. We can help. Contact us at Hill & Co. so we can tell you more about the HOA services we provide in California for HOA boards and community associations just like yours. We can deliver full-service management or virtual management if you’re looking for something more flexible and cost-effective.