Every HOA must financially safeguard its community in order to grow and prosper. Unfortunately, not all HOAs are equipped with the right tools and opportunities. In better words, without financial stability, there is no HOA. In times like this, an HOA must be proactive and plan accordingly to secure its community financially. To better explain, let’s explore five tips for managing your HOA’s financial stability.
1. Financial assessments
Financial assessments are a large part of determining an HOA’s financial position. Before you can improve, you must understand where your HOA stands. In most cases, the board will often evaluate its expenses by evaluating financial tools such as balance sheets, financial records, and cash distributions. In addition, consider the following as ways to evaluate your HOAs financial stability:
- Paid supplier and vendor bills - To increase financial stability, it’s recommended that an HOA conduct a thorough review of all annual supplier and vendor contracts. Search for areas of opportunity that could potentially save on cost or receive additional discounts. In addition, be sure to evaluate all service contracts that have been set up for yearly renewals — contracts such as this are a great way to be considered for customer loyalty discounts due to the HOA’s length of business.
- HOA dues - Member dues highly affect how the HOAs budget is regulated. For dues to stay up-to-date, an HOA must implement certain protocols and rules so that their community successfully submits dues on time.
2. Third-party accounting services
With the many responsibilities of running an HOA, accounting is one of the most important departments for maintaining a successful HOA. In fact, many HOAs have now transitioned into third-party services, such as HOA software applications, to help manage their day-to-day responsibilities.
- Transparency - allows HOAs the ability to accurately track payments and forecast expected changes in budgets through virtual platforms and automated reports.
- Accountability - 24/7 virtual access
- Receive community updates
- Allows teams to request and inquire among other departments
- Access personal account information remotely during non-business hours
- Communicate directly with other property managers or board members
You can’t manage financial stability without transparency — not to mention through communication. More times than not, HOAs often find themselves in hardships when a community lacks transparency. They may experience issues such as absent board members, miscommunication between board members, financial loss, dishonesty, or hierarchy problems.
When managing your HOA’s finances, being transparent with clear communication is the key to a successful HOA. Communication is also a two-way street — it’s an important part of learning information and works as a form of taking care of one another.
- Active listening - Active listening is when one can listen and respond to the other person's words — it improves the mutual understanding between you and the other person.
- Types of communication - When communicating, it’s important to understand how your team communicates. Do they prefer verbal, written, or more in-person communication? Regardless of whatever method works, remember everyone communicates differently. The message the receiver receives is not only in what they say, but what they use to communicate the message.
- Q&A community meetings - As board members, your community will want to understand where their money is going. As a suggestion, provide opportunities for members to ask questions by hosting a community Q&A or digital online meeting. This works as a great way for members to engage in conversation and provide feedback.
- Reliable software – One way to ensure financial stability is by having reliable software. Now you may be thinking, “are they not all reliable?” Short answer – yes and no. Every software is different —depending on the current state of your community's software, you may find that the price of upgrading your software would cost more than just buying a new program.
When evaluating your software, consider the following questions:
- Does the cost of your current software outweigh your incoming profit?
- What benefits does your current software bring to the HOA?
- Is your software compatible with your current accounting system?
- Streamline day-to-day responsibilities - The responsibilities of an HOA are endless. Depending on the size of your HOA, there may be a lot of opportunities to cut down on the number of expenses that it takes to operate the day-to-day responsibilities. When evaluating your HOA’s financials, consider or streamline tasks that are costly for the HOA. Are there alternative ways to help operate these responsibilities that could be more cost-effective?
- Improved financial records - Improving your financial records is another way software can help manage financial stability. In today’s world, there are several HOA software companies that offer different applications and features. Many of these programs help increase productivity, all while decreasing overall expenses. Take, for example, TownSq. Software such as this offers communities the opportunity to process online payments, request and participate in open forums, and, most importantly, access important documents such as financial records and contracts. It also has the ability to manage financial records through a secure online community portal.
HOA reserve fund
Efficient reserve funds - Another way to manage your HOA’s financial stability is through your community reserve fund. An HOA reserve fund is a portion of collected HOA dues set aside for major financial expenditures.
Reserve study - In addition, some HOAs may also consider taking part in a reserve study. A reserve study is a great place to start when determining how much a board needs to save. It shows what amount the board should aim for when filling the reserve fund to 100%. The bigger an HOA, the more funds needed to be allocated. Keep in mind that securing anything over 70% of the reserve fund can prevent it from becoming underfunded. In this scenario, the HOA board may find themselves left scrambling for dollars — which then could put your community at risk of large hardships down the road.