11 Steps to Stronger HOA Finances

Posted on Wednesday June 08, 2016 |



There’s a lot that goes into creating an ideal community. Beautiful landscaping. Residents who care. Board leadership with a clear vision.
 
But really, at the core of it all, the pursuit of the ideal begins with something you can’t necessarily see from the outside: financial stability. And this means more than just maintaining operations. It also means positioning your community as an attractive investment – an association that is in good financial order can really affect the decision-making of a potential buyer.
 
So to help strengthen your association financially, here are eleven tips.

1. Budget smart.
Great communities begin with strong budgets, so it only makes sense that our list will begin here. Your budget isn’t a wish list; rather, it should be a highly realistic document that accounts for both anticipated obligations and the unexpected.
 
2. Keep an eye on capital.
Even the most detailed budget is subject to the vagaries of cash flow. Sometimes it’s good, sometimes it’s not. For those latter times, our high-rise or master planned community may need to use the resources in your working capital fund. Build this part of your budget by collecting a contribution at closings and re-sales. Your working capital fund should be at least half a month’s expenditures. After all, a well-funded owners’ association is an effective owners association.

3. Have a deferred maintenance fund.
Occasionally, your association will encounter large line items, such as painting. You could levy a special assessment to pay for it, but that’s usually not the preferred way to go. On the other hand, a deferred maintenance fund allows you to collect for these expenditures over time.
 
4. Remember capital improvements.
There should be a separate part of your budget for capital improvements – those changes you make that actually enhance the value of your community, rather than merely maintaining the current state of operations. Start by having a qualified engineer create a report of your structural or engineering elements that can be enhanced, then apply money to the fund accordingly. A good HOA management services company can put you in touch with the right engineer for the job. And remember, lenders are more likely to issue mortgages for properties in communities with ongoing capital improvement. 
 
5. Craft your investment policy.
It’s your fiduciary responsibility to grow your community’s funds – but you have to make sure you do so with minimum risk. Making an investment plan can help. Make sure you put yours in writing, and be aware that it should account for insurance limitations such as FDIC and FSLIC. You’ll also want to be clear on when your funds can be withdrawn.
 
6. Make these docs accessible.
Effective California community management requires access to four key reports: actual verses budgeted income and expenses, overdue receivables (typically from 30 days on), a complete balance sheet and current expenditures. These reports should be generated with full financial controls in effect.
 
7. Establish a collection policy.
You don’t have to play the bad guy – let your policy assume the role. Create rules that penalize late payments when necessary as part of your formal collections policy. Make sure the policy is enforced with fairness and impartiality. Payment method can be part of the policy too – many communities find that direct debit helps with timely payments.
 
8. Get insurance reassurance.
If you’re looking for a major line item, look no further than your insurance. Don’t get us wrong -- it’s well worth the investment. It’s just a good idea to review your policy on a regular basis to make sure you’re not over- or under-insured. This usually takes the eye of a professional. For more insurance tips, check this out.
 
9. Keep your auditor on speed dial. 
Think of your auditor as one of your best friends – someone whom you want to see on a regular basis. Keep them updated on any issues that could affect the financial wellbeing of your association. An annual meeting is the minimum, so try to make it more often. A few more tips: appropriately document and execute surplus resolutions, and read (and take action on) the post-annual-audit letter they give you each year.
 
10. Keep your eyes on the horizon.
Your position on your board can sometimes feel like a full-time job. Yet there are issues that continually develop that will affect owners associations across the state – from San Francisco to Los Angeles to San Diego and beyond. Keep updated through the CAI (the Communications Institute) and use the resources they have available to stay apprised of these trends. This will help you plan proactively rather than reactively, and that makes for healthier communities.

11. Put a regional controller to work.
Good California community management companies will offer an additional layer of oversight in the form of regional controllers. These professionals will meet with you to keep their fingers on the pulse of important issues like budgeting, delinquencies and your overall finances. They’ll even review your monthly finances so they can give you an in-depth perspective on both daily expenditures and long-term objectives.
 
Financials don’t have to be complicated. For further simplification, contact FirstService Residential.

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