Handling the finances of a Homeowners Association (HOA) needs accuracy and expertise. Knowing and following all the key metrics is important to maintain the financial health of an HOA. There are metrics that can help in making good decisions but also make sure that the HOA is compliant for stability.
If you are struggling to manage the finances of your HOA, then contact a CPA in Hanover, MD. A CPA can help in making a detailed plan to manage the budgeting as well as financial planning of the HOA.
Read this article to learn more about some financial metrics that every HOA board should check regularly to see if their HOA is doing financially well or not.
Reserve Fund Levels
One of the most important metrics in any HOA board is the reserve fund. It basically shows how much money is set aside for big repairs, replacements, and any unexpected expenses. It can act as a safety net so that you can help with long-term safety.
Determining Adequate Reserve Levels
It is important to make sure that the reserve fund has enough funds. You need to do regular reserve studies so that you can check the expected lifespan of major assets and how much it will cost to replace them in the future.
The board should have at least 70-100% of the funds that the reserve study recommends. If there are not enough reserves, then there can be special assessments that can cause trouble to homeowners’ finances.
Tracking Reserve Contributions
Contributing to the reserve funds is also important. Boards should make it clear and for policy which makes it compulsory for everyone to make annual contributions. If there is a regular contribution, then the reserve grows and has enough for any kind of future financial needs, which can help avoid any shortfall in the budget when there is a large expense.
Delinquency Rates
Delinquency rates basically mean the percentage of homeowners who are behind on paying their dues. This metric can help to see the direct reflection of the financial stability in the community. ‘
Understanding the Impact of High Delinquency Rates
If your community has high delinquency rates, then it can cause problems with HOA’s cash flow. Boards have to regularly check this metric to make sure that the dues are getting collected on time.
Delinquent payments can reduce the funds that are available for important expenses, reserve contributions, and any important repairs, which can cause cuts in services.
Implementing Collection Policies
It is important to have strict collection policies that can help reduce delinquency rates. Boards have to adopt a very clear process for handling late payments and also put penalties on people who are regular offenders.
Late fees, interest charges, and legal actions can be taken so that everyone pays on time and the cash flow is stable.
Operational Budget Performance
HOA boards should regularly check their operational budget so that they can make sure that the association’s day-to-day expenses are in the before-planned range.
Monthly Budget Comparisons
Comparing the expenses of every month with the budget that was given in that particular month can help HOA boards stay stable financially and on track. Boards must identify variances and take corrective actions where necessary to avoid misallocation and overspending of funds.
Forecasting Future Expenses
Apart from tracking current performance, it is also important that HOA boards forecast future operational costs based on the data that is present with them.
Correct forecasting can help avoid any overspending, make the association ready for any upcoming financial expense, and make the budget balanced to deal with these situations.
Cash Flow Management
Proper cash flow management is important for maintaining the liquidity needed to cover all the everyday expenses like maintenance, utilities, and other operational costs.
Checking Monthly Cash Flow
Having a detailed cash flow report is important. It helps to see if there are any payments left to be paid or to be received. Keeping track can help in budgeting and looking if there are enough funds for any important financial obligation without depending on the reserve funds for all ordinary regular expenditures.
Planning for Seasonal Variances
Expenses never stay the same in every month or season. Different seasons can cause fluctuations in expenses. It is important to plan ahead and keep this variation in mind while budgeting.
Consult with A Professional Today!
Managing the finances of an HOA can be a complex and hard process. It is better to hire a professional who can give you expert guidance and also support you in managing your HOA’s financial health.