I was speaking to a group of about 40 property managers earlier this month on the topic of HOA financial management. In these seminars, I normally cover budgeting, financial statements, monthly financial reporting, audits, and ways to identify and minimize risk in community associations. My last slide is a list of top financial management tips that property managers and board members have found most helpful over the last 20 years.

These tips are located in my white paper on HOA financial management, and I mention them often when speaking, but I don’t think I’ve ever written an article about them. That ends today.

Here are 10 tips to help you maintain or improve the financial health of your association(s), including a number of links to additional articles on related topics:

  1. Elect someone with financial experience. It doesn’t have to be a CPA, but someone on the board (hopefully the treasurer) should have some working knowledge of business financial management. HOAs are businesses, after all.
  2. Create a new budget every year. Use last year’s budget as a starting point. Review variances between budgeted and actual revenue and expenses. Discuss potential future adjustments, like a new landscaping contract. Now you have enough data to formalize the new budget.
  3. Stick to the budget, documenting variances. It’s the board’s fiduciary duty to practice sound financial management. When budget variances occur, it’s important to note why, so current spending and future budgets can be adjusted as applicable.
  4. Honor thy reserve fund. It’s not a slush fund. The reserve account money is already allocated for specific future maintenance and repairs. Adequately fund the reserve, and use the funds as prescribed in the reserve study.
  5. Maintain adequate operating cash. Money tends to come in slowly, but go out quickly! As a general rule, maintain 10-20% of the annual budget as operating cash. You may have to delay some expenditures so there’s money available for normal bills as well as emergencies.
  6. Maintain adequate insurance coverage. Have an insurance expert review your community’s policies – commercial, directors and officers, cyber, etc. – to ensure that there’s adequate coverage. Adjustments may be required as the community ages.
  7. Review the financials every month. This is one of the main things the board and property manager can do to minimize the chance of financial errors, theft, and fraud. Financial results should be an automatic agenda item at every board meeting.
  8. Keep contracts current. All contracts should be signed and current, at least for major vendor relationships like amenities maintenance and property management. As fees change over time, update the contracts to match.
  9. Audit at least every 2 years. An audit or alternative engagement (audit lite) confirms the financial health of the community, often identifying problems before they become critical issues. Build this into your budget.
  10. File annual tax returns. HOAs and community associations are required to file federal and state (at least in Georgia) tax returns. Special forms are required, depending on the structure of the association. Don’t be the board member who caused the IRS audit!

Questions? Help is available

While most of us have some sort of business experience, managing a community requires a different set of financial skills that aren’t necessarily covered in the various board and property manager training classes. If you ever have questions or want to discuss a specific situation, please give me a call or send me an email. I’d love to help.

Neal Bach, CPA