Financial management requires attentiveness, proficiency with numbers, and a thorough understanding of related policies. Moreover, the stakes become even higher when you (and other HOA board members) must develop a budgeting and financial management plan. However, any goal can be achieved with the proper support and guidance. That’s why we’re here to walk you through the intricacies of financial management.
This blog will help you understand HOA financial management and develop a strong plan for your association. But before we discuss the details of creating a financial plan, let us give you an overview.
HOA Financial Management: A Brief Overview
HOA financial management is not just about numbers and policies. It’s about maintaining the association’s common problem areas, providing essential services, and reserving funds for the future. Effective and efficient financial management is the backbone of a strong homeowners association and community. Moreover, your efforts as an HOA member in this area can lead to a thriving community and a better quality of life for all residents.
Now that you understand HOA financial management better, let’s explore its essential aspects.
Significant Elements of an HOA Financial Management
Your HOA must consider several critical elements while outlining a realistic and practical financial management plan. These fundamental elements help establish an HOA’s financial management and aid in the overall distribution of HOA property management responsibilities.
In this section, we’ll outline each element thoroughly:
1. Budgeting
Everyone loves a well-budgeted plan. However, the HOA budget requirements must be well understood before your association sketches the financial budget. This requires your HOA to assess incoming and outgoing expenses while being mindful of future financial needs.
Furthermore, a realistic budgeting technique helps reduce deficits while reserving enough funds for future financial needs. Creating an adequate budget for your HOA is a multi-step process that ensures financial health and community satisfaction. Here’s a breakdown of the essential steps:
Assessing Income Sources
To ensure that the entire HOA budget requirements are well managed, your association needs to account for all the sources of income that balance the bookkeeping. Practicing this will benefit proficient financial management and will also help maintain documentation.
Below are some essential factors your HOA should consider while assessing the income sources.
- Dues: Homeowner dues are typically an HOA’s primary income source. Calculate the expected income from these dues by multiplying the amount each homeowner pays by the total number of homeowners. Ensure to account for any anticipated changes in dues for the upcoming year. In addition, it’s necessary to consider any forthcoming or due HOA demand fee.
- Fees: Additional fees might be collected for various services and amenities, such as clubhouse rentals, pool access, or parking permits. Estimate the income from these sources based on historical data and any planned changes.
- Special Assessments: Occasionally, special assessments are necessary for unexpected expenses or large projects not covered by regular dues. Plan for known special assessments and estimate their potential income in the upcoming year.
Estimating Expenses
An HOA sure has its expenditures—while most are routine and foreseen, some may arise unexpectedly. Therefore, your HOA financial statements must include both expected and unexpected expenses. Below, we’ve outlined some types of expenditures that are essential for devising an effective HOA financial plan:
- Maintenance: Routine maintenance is crucial for keeping common areas in good condition. Your HOA must include costs for landscaping, pool cleaning, and regular upkeep of shared facilities.
- Utilities: Water, electricity, and gas are recurring expenses. Estimate these costs by reviewing previous bills and adjusting for expected rate changes or increased usage.
- Insurance: Adequate coverage protects the HOA’s assets and liabilities. Include premiums for liability, property, and other necessary insurance policies. We recommend taking suggestions from your insurance provider to get accurate estimates.
- Fund Reserves: Reserve funds are set aside for major repairs and replacements, such as roofing, paving, and structural repairs. Conduct a reserve study to determine appropriate reserve levels and include these in your budget to ensure long-term financial stability.
Balancing Budget
While your HOA budgeting plan seems sound and ready to implement, there still could be some pitfalls and unaccounted expenses. To ensure that your balance sheet covers everything, ensure that your HOA accounting services or accountant has done the following:
- Matched Income and Expenses: Ensuring the total projected income matches the expenses. If there is a shortfall, they’ve considered adjusting dues, identifying additional revenue sources, or cutting discretionary costs to balance the budget.
- Considered Contingency Fund: Included a contingency fund to cover unexpected expenses. This financial cushion is vital for dealing with emergencies without disrupting the budget.
Remember to incorporate every step to ensure everything goes smoothly when devising a management plan. Moreover, it’s advised to keep homeowners, association members, and the board informed about the budgeting process. Regular communication helps build trust, keeps the community engaged, and supports budget decisions.
Also, note that the benefits of HOA financial management can only be manifested if your association or HOA accounting services are well-acquainted with budgeting. After working with all the resources mentioned above and devising a budgeting plan, the next big step is understanding financial reporting.
2. Financial Reporting
Financial reporting involves systematically preparing and presenting financial statements that reflect the association’s economic activities and status. These reports provide a detailed view of the HOA’s financial health, helping board members, property managers, and homeowners make informed decisions.
Primarily, there are three types of financial reports, which include:
- Balance Sheet
- Income Statement or profit/ loss statement
- Cash flow statement
Maintaining each financial report mentioned above helps the board understand expenses' total inflow and outflow. Monthly, quarterly, and annual financial reports provide timely updates, comprehensive overviews, and homeowner association audits, helping the board monitor activities, identify trends, plan for the future, and communicate with homeowners.
3. Reserving Funds
As you may already know, reserve funds are the amount kept aside for major repairs and replacements, ensuring long-term financial stability. However, it’s vital to determine adequate reserve levels by studying previous expense patterns, which may help assess future replacement and repair costs.
4. Revenue Collection
The HOA revenue collection process involves collecting dues and assessments through online payments, checks, HOA demand fees, and automatic withdrawals. Handling delinquencies requires clear communication strategies, such as reminders and personal outreach, and, if necessary, legal actions like late fees or liens for persistent non-payment. Utilizing technology and software can automate and streamline the collection process, ensuring efficiency and accuracy.
5. Expense Management
It may surprise you, but even though we have an entire blog dedicated to HOA financial management, expense management issues still manage to sneak through the cracks; that’s why it’s crucial to keep thorough documentation on everyday expenses, including maintenance, utilities, insurance, and administrative costs for an HOA. To manage these expenses effectively, implement cost-saving strategies such as energy-saving measures, negotiating better rates with vendors, and prioritizing essential costs.
Additionally, vendor management is critical in establishing clear contracts, regularly reviewing vendor performance, and negotiating favorable terms to keep costs in check.
6. Audits & Financial Reviews
Regular homeowners association audits are crucial for ensuring accuracy, transparency, and compliance with financial regulations. Internal audits, conducted by board members or committees, and external audits performed by independent professionals play vital roles. We encourage hiring an experienced, reputable auditor familiar with HOA finances. Prepare for audits by organizing financial records, preparing necessary documents, and maintaining transparency to ensure a smooth process.
7. Legal & Regulatory Compliance
Much like every management plan needs a contingency plan, every wrong action requires a regulatory reaction! It simply means that while ensuring all your finances and books are up to date, staying informed about relevant state and federal laws governing HOA finances is equally important.
As your HOA may or may not have to face defenders, it is highly encouraged that your association ensures that all financial practices adhere to legal requirements to avoid penalties. Remember to maintain clear, accurate records and to communicate openly with homeowners to uphold accountability and trust.
8. Risk Management
Identify potential financial risks, such as unexpected repairs or economic downturns. Ensure comprehensive insurance coverage for property, liability, and other risks. Regularly review and update insurance policies to match the HOA’s needs and mitigate financial risks effectively.
We hope this comprehensive guide has provided valuable insights and motivated you to create your HOA financial management plan! We know that developing a well-rounded solution can take weeks or even months. But what if we told you it could be done in just a few clicks? Wondering how? With the help of ManageCasa, you can streamline the entire process efficiently and effectively—no more spreadsheets-induced headaches!
ManageCasa: Your Gateway to Streamlined HOA!
As you may have realized, it may not be feasible for every community or HOA to manage all the tasks, including financial management. However, there’s a silver lining—ManageCasa! We firmly believe that your community or homeowners association management needs the care of technology added with our committed support so your COA or HOA can flourish.
Furthermore, once you digitize your HOA online, you’ll realize major improvements and contrasts in HOA account management vs. self-managing.
With our dedicated, highly customizable platform, you can automate all the processes from your couch! Our platform is also available on mobile phone devices for better accessibility.
Connecting your HOA with ManageCasa gives you the opportunity to:
- Integrate your bank
- Submit payments online
- Communicate with the community in the app
- Track violations & compliance
This is just a glimpse of what ManagCasa can do; schedule a demo today to get the whole online HOA experience!
FAQs (Frequently Asked Questions)
How often should an HOA conduct a financial audit, and what is its purpose?
An HOA should conduct a financial audit annually. The purpose of a financial audit is to provide an independent review of the association’s financial statements and accounting practices. This helps ensure accuracy, transparency, and compliance with legal and regulatory requirements. Regular audits also help identify discrepancies or potential issues early, maintain homeowners’ trust, and provide a clear financial picture to guide future budgeting and financial planning.
What typically occurs during an HOA audit?
An HOA audit systematically reviews the association's financial records, transactions, and procedures to ensure accuracy, transparency, and compliance with financial regulations and governing documents.
How do I request HOA financial statements?
To request HOA financial statements, you need to follow the steps given below:
- Review Governing Documents
- Put a Formal Request to the HOA board or property management company
- Specify your purpose for extracting the financial information
- Submit the request & done!
Why does an HOA need a financial management plan?
An HOA needs a financial management plan to ensure economic stability, cover maintenance and operational costs, prepare for future expenses, maintain transparency with homeowners, comply with legal requirements, and manage risks effectively.
