Financial management is a critical component of any HOA board, but all too often, it’s something that many board members avoid due to lack of experience or knowledge in the area. It’s not unusual for an HOA board member to have no experience tracking budgets or creating financial reports. And if these duties are neglected each year, you may find your community in a state of disarray or financial turmoil. In this blog, we’re going to talk about some helpful tips for managing your HOA’s financials and staying on track.
Understand basis of accounting
If you want to better manage your HOA finances, you’re going to need to know what basis of accounting you should be using when preparing your interim monthly, quarterly, and annual financial statements. These include accrual basis of accounting, cash basis of accounting, and modified accrual basis of accounting. Accrual basis of accounting is generally seen as the best option because it is comprehensive. This basis of accounting is when all financial transactions are reported on the homeowners association’s financial statements. Cash basis of accounting records income and expenses when cash is actually exchanged. Finally, modified accrual basis of accounting is a combination of the two. Revenues are reported when they are earned whereas expenses are reported when they’re paid. Although it is not in conformance with the Generally Accepted Accounting Principles (GAAP), it is used as an acceptable basis of accounting for interim reporting for HOAs.
Understand federal and state laws
When creating and distributing financial statements, you won’t be able to just do whatever works for you. There are certain federal and state laws that you will need to follow in order to ensure that your HOA’s practices are legal and fair to homeowners. For example, after yearly reports, financial statements will need to be physically distributed to homeowners within a certain period of time and the HOA board must be able to provide certain financial documents if they are requested. Make sure you understand all federal and state regulations and laws.
Have a clear budget
Having a budget for your HOA community is similar to having a budget for your own personal income, just on a much larger scale. However, one problem many HOA leaders make is that they’re not specific enough with their categories. For example, as you manage your general ledger account, you should have it divided into separate categories like landscaping and maintenance. This way you can create sub-categories to budget specific projects that you have going under each category.
Another thing you need to make sure to do is to ensure this system will work well into the future. If you change treasurers or have an assistant treasurer on the job, there may be complications if the categories aren’t easy to understand and make sense.
Hire an HOA management company
If you’re having trouble managing your HOA community finances, one of the best things you can do for yourself and your board is to hire a qualified HOA management company. HOA management companies like RS Fincher are essential for managing HOA communities of all sizes. With us, you’ll never have to worry about your bookkeeping, accounting, or financial statements. We work closely with HOA board members to understand their goals, then do everything we can to make them happen. And financial management is only a small part of what we do. RS Fincher will guide your board of directors through every aspect of HOA management and establish a system that works best for you and your residents. If you have any questions or you’re ready to get started, contact us today.
Read part two of this blog to learn some more helpful tips about financial management.