Top 5 Tips for Effective HOA Financial Management

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Financial management is an essential part of all HOA birds. However, most board members often avoid it as they lack the required knowledge or experience. A typical HOA member is most likely inexperienced in monitoring budgets or developing financial reports. If these tasks are neglected annually, it may put your community in a state of disorder of financial chaos. 

Keep on reading to discover the five essential tips on how to successfully manage your HOA’s finances and stay on track. 

1. Understand the basics of accounting

Knowing the basics of accounting that should be used when developing your interim monthly, quarterly, and annual financial statements is essential if you want to achieve and efficient HOA financial management. These include accrual accounting, cash accounting, and modified accrual accounting methods. Accrual accounting is typically considered to be the most effective method as it’s universal and all-inclusive. This accounting method aims at reporting all financial operations on HOA’s financial statements. The cash accounting method involves recording expenses and revenues when cash is paid and received. The modified accrual method has something from both of these. In it, the revenues become recognizable when they’re measurable and available. Though this method is not in compliance with GAAP, it’s allowed to be used for HOA’s interim reporting. 

2. Hire an HOA accounting service

If it’s difficult for you to manage your HOA’s community finances, hiring a reputable company that provides HOA accounting services may be a great solution. These companies can be beneficial for all HOA communities regardless of their size. With them, you can be sure that your accounting, bookkeeping, and financial statements are done correctly and in time. These specialists will understand your goals and do all that’s necessary to accomplish them. Sometimes, financial management is not all that these companies can provide. They can also advise you on how to handle different parts of HOA management and create the most effective system for you and your residents. 

3. Understand federal and state laws

You won't be able to do whatever you want when it comes to making and delivering financial statements. To ensure that your HOA's activities are lawful and fair to homeowners, you will need to obey certain federal and state regulations. For instance, financial statements must be physically delivered to homeowners within a certain time frame, and the HOA board must be able to supply certain financial records if they are requested. Ensure that you are familiar with all federal and state rules and laws.

4. Have a clear budget

Budgeting for your HOA group is close to budgeting for your personal finances but on a more massive scale. However, many HOA leaders have the issue of not being precise enough with their categories. For instance, you should split your general ledger account into different categories as you handle it. These include landscaping and maintenance. By doing this, you can develop sub-classes to budget certain projects that you have going in each class. Another thing you must do is to make sure this system will stay efficient in the future. If you’ve hired an assistant treasurer or frequently change your treasurers, this can result in problems if the categories are difficult to understand.  

5. Shop locally

Almost always, shopping locally for all of your HOA's needs is a smart idea. Not only would you be putting money back into the local community and homeowners, but it could also be helpful to the board of directors and the HOA as a whole. HOA boards that shop locally also receive loyalty incentives or discounts, which can help them develop a good and reliable financial management strategy.