Dealing with HOA finances is part of the board’s duties. Sometimes, though, problems and tasks can pile up, and the board can start feeling overwhelmed. This is where professional HOA financial management comes in.
The Benefits of HOA Financial Management
Ideally, the board of directors in every homeowners association would have the necessary background and skillset to manage HOA finances. They would have all the time in the world to devote to HOA financial management.
Unfortunately, this setup is far from reality. In truth, most HOA boards lack the time and proficiency that HOA financial management demands. Luckily, there’s a clear solution to this problem.
By hiring a professional HOA financial management service, your board can eliminate financial problems and focus on other aspects of community management. With a clear mind and the assurance that experts are taking care of your association’s finances, you can concern yourself with the bigger picture. More specifically, here are the areas professional HOA financial management can help you with:
1. HOA Accounting
Let’s face it — accounting is a tough subject to grasp. It stumps even the most competent of people. After all, just being good with numbers isn’t an adequate prerequisite to mastering accounting. The topic involves logic and requires extensive knowledge of the subject matter.
First of all, you must know which basis of accounting to use for your HOA — and you can’t just switch from one to the other on a whim. Knowing which accounting method to use also requires familiarity with each concept, including which account titles fall under credit and debit.
There are also a handful of HOA financial reports you must prepare on the regular. This includes the Balance Sheet, Income Statement, and Statement of Cash Flow. Apart from that, you need to balance accounting books like General Ledger, Accounts Payable Ledger, and Accounts Receivable Ledger. Each one serves a specific function.
This may all sound foreign to you, but they’re all part of the job description for an HOA financial management company. With expert services, your board can check HOA accounting off your list.
2. HOA Budgeting
Another aspect of financial management that most HOA boards struggle with is budget preparation. The process involves assessing current expenses, analyzing historical data, and making projections based on a number of factors.
You also need to account for contingencies and delinquent homeowners.
Your HOA budget is a foundational tool for success. It’s used to calculate the monthly assessments homeowners must pay. Therefore, you must make sure to cover all probable expenses to prevent losses or cutting corners. On paper, the process seems simple. However, when applied, you’ll often find yourself running into problems like price hikes, inflation, wage increases, and the like.
With the help of HOA financial management, you can streamline the process and ensure an effective budget plan. Professionals prepare budgets all the time, so they have the knowledge and experience to help you with this task.
3. Financial Risk Management
If you’re familiar with homeowners associations, then you know that risk comes with the territory. HOAs face all kinds of risks — from property damage to cybersecurity. One of the most detrimental is financial risk. Unfortunately, not all HOA boards have a good grasp of how to assess and manage financial risk. But, on the bright side, an HOA financial management company does.
By seeking HOA financial management help, your HOA can minimize the exposure to financial risk and set guidelines on how to deal with them should they arise. This includes planning for possible loss of income and getting the right insurance coverage.
4. HOA Audit and Taxes
Some states require HOAs to perform independent audits every so often. But, even if an audit isn’t mandatory in your state, your governing documents may require it.
Audits still help improve your association. They verify and assess the accuracy of HOA financial documents, giving your board and all homeowners the assurance of financial stability.
Audits don’t have to be a long and grueling process. With HOA financial management, audits can be a breeze. Professional services also help with tax preparation, so you don’t have to worry about which forms to file and when to file them.
5. Reserve Fund Studies
As with audits, HOAs are obligated to conduct reserve studies in some states. For instance, in California, HOA reserve studies must be carried out at least once every three years. Regardless of whether or not your state mandates it, though, HOA financial management companies will usually recommend communities incorporate a reserve fund study into their annual schedule.
The results of the reserve study will let your association know the funds in its reserve account are handled properly. Having a good amount in the reserve fund is very important for communities to be prepared for larger expenses, both planned and unplanned, and a reserve fund study will make sure everything is on track and prepared.
6. Help with Payables and Receivables
Invoicing, collection, and issuing payments are some of the most time-consuming tasks in an association. Yet, they remain necessary parts of HOA management. Without dues collection, an HOA wouldn’t have any income to use for maintenance and repairs. This would lead to decreased curb appeal and lower property values.
On the other hand, late payments to vendors can also have damaging effects. It can result in the suspension of services or a bad working relationship. With a reputation for being a bad payor, little to no vendors will want to work with your association.
HOA financial management companies usually have the latest software to help handle payments and collections. As a result, you can ensure all payables are settled on time and in full. You can also look forward to more efficient invoicing and dues collection.
7. Deter Fraud
Perhaps one of the most overlooked benefits of HOA financial management is fraud prevention.
A self-managed community is more vulnerable to theft and embezzlement. Without an unbiased third party, just about anyone with access to the HOA’s finances can fudge the numbers and steal money.
If you want to prevent fraudulent activities within your association, HOA financial management is the way to go.
Hire an HOA Financial Management Company Today
More often than not, HOA boards are made up of volunteer members from the community. These volunteers, though, don’t always have the time or expertise to carry out HOA financial management seamlessly. For effective accounting, budgeting, and risk management, you need a competent company. Outsource your HOA financial management today and know your HOA finances are in good hands.
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