2021-11-11
Homeowners Association (HOA) managers play a vital role in the success of homeowners and their communities. In addition to prioritizing community needs, responding to residents, and enforcing rules, condominium management boards must handle association funds.
What are some of our best tips to manage funds for your community? Our community managers have four tips to help you remain transparent with homeowners and execute budgets well!
1. Never Commingle Funds
Accurate financial bookkeeping requires tracking fees and expenses into the appropriate funds. Unfortunately, a homeowners association can get into sticky situations when costs or funds end up in the wrong financial bucket when it's time to report back to homeowners about annual budgets or special assessments.
While it's easy to make a mistake and categorize expenses under the wrong fund, condo owner association boards should put processes and software in place to reduce the potential for errors. It might also be a good idea to hire a bookkeeper or community management company to keep an eye out for such errors and avoid mixing funds that don't belong together.
If you currently only have one "bucket" for all income and outgoing funds, it's time to evaluate potential needs for different funds to improve budgeting and reporting accuracy. For example, many community associations have separate funds for general operating expenses, maintenance, and reserves.
2. Review and Evaluate Insurance Policies
Your HOA's insurance should cover damages while also providing protection from potential liabilities. Sound financial management includes taking time to periodically review insurance policies to make sure your condo owner association isn't overpaying for coverage the community doesn't need. However, in some cases, your association board might find that current coverage isn't sufficient for the community's needs.
Community managers recommend revising homeowners association insurance policies annually to ensure common areas, community resources, facilities, and other aspects of the association have adequate coverage at excellent rates. When reviewing your association's insurance, you may also want separate commercial general liability coverage for events like community fundraisers or holiday parties. Your board might also need additional commercial property insurance for homeowners who store collectibles or specialty equipment in common areas.
Without the right coverage, a resident's accident in the community pool or storm damage to the clubhouse could become a significant financial loss.
3. Make An Investment Plan
Your condominium management association needs ongoing revenue to provide the services, facilities, and amenities that homeowners enjoy. If future revenue is something your HOA board worries about, consider investing a portion of your reserve fund to earn returns. Of course, investments usually come with limitations outlined within your governing documents. You may be limited to a dollar amount or prevented from investing at all. The governing documents may also dictate what types of investments are permitted.
However, smart investing that follows the homeowners association rules and governing documents can provide a safety net for your community when budgeting falls short of revenue from HOA fees. When choosing an investing plan, consider safety, liquidity, and yield. If you're not sure how to evaluate those factors for a sound investment strategy, an HOA management company can guide you!
4. Update the Reserve Study On An Ongoing Basis
A reserve study analyzes the health of your community association's reserve fund. This exercise helps determine when the parts of your association will need to be repaired or replaced. Then, the study then predicts the cost of critical replacements or repairs to help the board plan and budget resources accordingly.
Conducting a routine reserve study is a critical aspect of successfully managing finances for your association. Through these studies, your board understands how much money your reserve fund should have and how you can get there. It's also an excellent way to stay accountable to the community and report with transparent financial statements.
While an annual budget proposal lets homeowners know what they're paying for, homeowners associations also need to show homeowners where their dues go after expenses are covered by condo management fees. The best way for homeowners associations to do that is through detailed reports and reserve studies.
Hire a Professional Condo Manager for Financial Management
If tackling these four tasks to improve your association's management feels like too much at this time, help is available! Condominium association management companies are another resource to help homeowners associations manage finances more effectively. With a professional community manager, you have an advocate and third-party resource to handle bookkeeping, review insurance policies and recommend updates, conduct reserve studies, and report back to your homeowners within the community. An HOA management company also serves as your community's contact with vendors and contractors, conducts training for homeowners' board members, and ensures that homeowners follow the rules of their condominium associations.
If you were wondering how HOA boards find professional condo managers, it's easier than you think! Trestle Community Management helps condo owners associations and HOAs with a range of services, including financial services. Whether you could use help with multiple aspects of your community's management or our financial-only management services are just what you need, reach out soon to learn more!
Get more association management tips when downloading our free resource, "Best Practices for HOA Operations: A Checklist."
