The success of most condo associations depends on their finances. This is an important aspect not just for board members but also for homeowners and investors. Many argue that the first indicator for HOA finance health lies in the quality of maintenance and the physical outlook of such an association.
The advantages of always evaluating and ensuring the financial health of HOAs are what make communities prosper. HOAs will be able to meet the residential needs and also attract more investors. It also increased the chances of getting approved by lenders for mortgages when individuals care to purchase a home.
Essential Tips to Ensure Financial Health For Your HOA
Ensure due maintenance of amenities and common areas
When you maintain common areas and amenities, it is easier to get members to pay dues on time. You do not want to have abandoned projects piled up such that it becomes overwhelming for board executives and managers.
Living areas, landscapes, and amenities are all places that need to be constantly maintained. You can suggest regular maintenance dates and also provide homeowners with a clear budget. This will communicate transparency and also encourages compliance when there is a need for any changes.
Review Receivable Finance Assessment and Financial Process
How often do HOA members pay their dues on time? And what type of accounting method is the HOA using? There are basically two accounting methods used by HOAs.
- Cash: The records payment by when they are received and not when they are earned.
- Accrual: Records revenue when they are earned and not when received. Expenses will also be recorded when incurred and not necessarily when cash is disbursed. Some HOAs may modify the accrual method to fit their needs.
Depending on the accounting method, the days receivable can be evaluated. This is the average number of days with outstanding debts. This helps to evaluate if the HOA has an effective collection process for its community.
Collection times that span out for longer than 30 days can affect the community; incur numerous bills, and expenses, and deplete cash reserves. Calculating the receivable days is far more cost-effective.
Reserve Fund Auditing
General goodwill among community members and increased or maintained property values are the benefits of having a funded reserve. HOA managers will be able to keep assets in the association maintained and in good working condition.
Assets such as pools, playgrounds, drainage ponds, boilers, etc need to be properly maintained. Having a reserve plan is just as important as auditing. Having both in check will ensure proper planning and allow board members to discover opportunities for the growth and future assessments of condo associations.
Employ an accountant to enact your HOA’s accounting best practices
Accounting firms that specifically serve HOA communities should be employed regardless of your HOA. As mentioned earlier, the financial health of HOA associations determines their maintenance and growth.
Hence, you need a professional to be paying attention to your finances at all times. Financial accountants will also liaise with third-party contractors, engineers, and other external economic factors to keep your HOA finance in check. The will;
- Evaluate reports
- Assist with reserve fund planning
- Help financial decision-making process
- Spot opportunities
- Make sure all records are accurate and up-to-date.
Get familiar with the laws and regulations of your jurisdiction
Part of the reason why HOAs fail is due to ignorance. If board members are ignorant of laws, regulations, and protocols in their jurisdiction, they are more likely to make poor financial decisions. Without proper knowledge of laws and regulations, it is also difficult for communities to spot opportunities that are necessary for growth. You can train the board of directors and community members by;
- Providing up to date copies of CC&Rs (Declaration of Covenants, Conditions & Restrictions)
- Discuss changes in state laws even before they are implemented
- Regular Q&A sessions
Homebuyers, investors, and lawmakers will always look out for these outlined determinants for the financial health status of an HOA association. You should also understand that every homeowner’s association is unique which makes it quite difficult to follow a specific auditing process for finances. Hence, board members need to first form a standard for the community. This standard will determine reserve fund plans, collection plans, and periodic special assessments.
Having a standard will also make it easier to have good partnerships with third-party associates. It will also help buyers, and lenders quickly sign off loans to ensure the continual growth of properties.
In need of a CONDO accountant? We are an accounting firm that oversees the affairs of HOAs. We specialize also in detecting frauds associated with HOA communities to ensure that your finance efforts are protected. You can always reach out to us for help.