HOA fiancial managementArmed with 15 years of experience working with HOAs and community associations, I’m finally about to publish my first white paper on effective HOA financial management. As we were poring through 75 blog posts and a pile of CAI magazine articles that I’ve written on the topic, I was thinking about all the written (articles and audits) and verbal (seminars and phone calls) advice I’ve given to boards and property managers over the years.

Spoiler alert – magicians need not apply

There’s no magic way to run a homeowner association or operate a board of directors. A community can be self-managed or professionally managed, with a tactical or strategic board, and still be successful. I have my personal opinion (professionally managed, strategic board), but with enough hard work any association can muscle through.

There is also no magic required to achieve HOA financial success. I’ve given out a lot of financial management advice over the last 15 years, but most of it really boils down to these six tips:

  1. Fund your reserve. This is your association’s long-term savings account for major repairs to or replacements of amenities and structures. The required funding is determined by a reserve study, which should be updated every 3 years. We don’t conduct these studies, but can recommend some great companies.
  2. Elect someone with financial experience. Make sure at least one board member, normally the treasurer, has some financial knowledge. Property managers may do this, but someone on the board also needs to review financials and bank statements each month to verify accuracy.
  3. File tax returns. This just came up again last week. HOAs may be non-profit entities, but they must file state and federal tax returns like other businesses. You need an experienced CPA who can tell the difference between Form 1120 and 1120H, or you could end up wasting money paying taxes on tax-exempt revenue.
  4. Ensure adequate insurance coverage. That includes commercial insurance to cover damage. fidelity insurance to cover theft, directors & officers (D&O) insurance to cover board liability, and auto insurance for those who drive on HOA business.
  5. Sign and update contracts. Remove any hint of impropriety by signing contracts with all major suppliers, like property managers, landscapers and pool management companies. As pricing changes, even when covered under price adjustment clauses, update the contracts to document the new pricing. That way the current and future boards won’t lose track.
  6. Audit at least every two years. Audits, or less expensive audit alternatives like agreed-upon procedures engagements, can be a proactive way to show the board, the property management company, and the community that the association is financially healthy. They can also be used during major changes (developer turnover, new board, etc.) to benchmark financial status – good or bad.

Coming soon – BJM Guide to Effective HOA Financial Management

I hope to officially announce the white paper in a few weeks. Even though you now have the six secrets to HOA financial success, it will still be a good source of tactical advice for board members and property managers. If you can’t wait for the book, please give me a call and let’s schedule a time to review your community’s financial health.

Neal Bach, CPA