HOA finances are not something a board can take lightly. A single mistake can cost the association hundreds, if not thousands. This is where financial management can make all the difference. With professional assistance, the board can ensure all aspects of the association’s finances remain in good shape.
The Importance of Managing HOA Finances
Homeowners associations and condominiums rely on funds to cover day-to-day and future expenses. These funds usually come from homeowner dues, but the work doesn’t stop at collection. Board members must also juggle a multitude of other financial duties, including preparing reports, processing invoices, and planning the budget.
All of these things work like cogs in a machine. One cog out of place can cause the entire operation to crumble. This is why board members must keep a close eye on the association’s finances, making sure to plan and manage them carefully.
What Does HOA Financial Management Include?
When it comes to HOA finances, the board might think it can juggle things on its own. But over time, the list of responsibilities can grow longer and longer until something important might fall through the cracks.
This is where professional companies can step in. They already have the systems and experience in place to catch details that a volunteer board might miss. While services can vary, financial management typically includes the following:
1. Dues Collection
The lifeblood of HOA finances will always be dues collection. If the board does not collect regular dues and assessments, there will be nothing to fund the budget. Every homeowner has an obligation to pay these dues, but the reality is that some will pay late and others will not pay at all.
A management company can step in with online portals, automatic withdrawals, and payment reminders that make it easier to stay on track. When delinquencies do happen, the company can handle notices, set up payment plans, or move forward with collections. This way, the board won’t have to spend all its time chasing down owners.
Without proper collection practices, the board will come up short on funds, vendors won’t get paid, and projects will get left behind. Before long, the entire community will feel the effects of a deficit.
2. Financial Reporting
Boards can’t make wise decisions if they don’t know how the association’s finances are doing. This is where HOA financial statements matter. These statements show income, expenses, reserves, and more in a clear snapshot.
A professional company can prepare monthly and yearly reports. The board can use these to see where the money is flowing, what patterns might be emerging, and what problems need to be addressed before they grow bigger.
Without these reports, boards can end up making decisions blindly. Blind decisions are almost always the ones that come back to hurt the community later.
3. Budget Planning
The budget sets the financial tone for the association every year. It anticipates expenses and serves as a basis for calculating regular dues. Board members, particularly the secretary, are in charge of coming up with this budget and estimating costs.
Unfortunately, without experience or expertise, budget planning can quickly fall apart at the seams. The board might underestimate costs, forget about long-term projects, or fail to account for inflation.
A management company can help by looking at income projections, comparing expenses year-over-year, and planning for reserves. It can also provide benchmarks, showing how other communities handle similar budgets.
4. Vendor Payments
Every association needs vendors, and vendors need to be paid. It might sound simple, but it can get messy fast when invoices start to pile up. A management company can process invoices, confirm the completion of tasks, and make sure checks go out on time.
When payments lag, vendors might lose patience and trust, resulting in their services slipping. Before long, the community’s curb appeal will begin to deteriorate. Vendors help keep the community running, so it’s essential to pay them on time.
5. Insurance Management
Insurance might not be something the board thinks about every day, but it can be the one thing that saves the community from disaster when something goes wrong. A management company can track renewal dates, check coverage, and make sure the association remains protected.
Additionally, the company can also compare policies to get the best deal possible. Without this, the association could find itself underinsured. When a claim comes in, the financial damage can devastate the community in the long term.
6. Auditing
Audits can sometimes feel like extra work, but they are what build trust between the board and the residents. A management company can arrange for audits or financial reviews that double-check records and confirm that everything lines up.
These audits can catch mistakes, discourage fraud, and reassure owners that their money is safe. Without them, suspicion might creep in, and suspicion can spread quickly even if nothing is technically wrong.
7. Reserve Management
In Maryland, condo associations must maintain a reserve fund as required by law. Similarly, Virginia condominiums are legally required to prepare reserve studies.
Given the complexities of reserve planning, many boards might struggle with the job. A management company can guide reserve studies, track balances, and ensure contributions remain consistent. Without reserves, the board might have to rely on special assessments, which are almost always upsetting to homeowners.
8. Tax Preparation
While most associations operate as nonprofit corporations, they are still legally required to pay taxes and file tax returns. Board members might know how to do their own taxes, but preparing them for a large organization is an entirely different ball game.
With a management company, boards won’t have to worry. Professionals can prepare the forms, organize the records, and make sure to meet the deadlines for paying and filing. Mistakes can lead to penalties, which can negatively impact HOA finances. The board can avoid these mistakes by hiring a management company.
A Good Decision
HOA finances play an integral role in the successful operation of any community. Board members must oversee these finances, which involves a lot of work. Hiring a management company is ultimately the best option for self-managed associations.
Keymont Community Management offers expert management services, including legal compliance, to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to get started!
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