Are you an HOA board member who struggles to regularly analyze the association’s financial reports? If so, fear not—you are far from alone. The reality is that board members come to the association with wildly different backgrounds and kinds of experience; some may be well-versed in finance and in budgetary reviews, but many are not. For HOA board members without much financial background, it can often seem daunting simply to stay on top of the regular financial reports.
With that said, it is helpful if every board member can stay on top of the basic financial condition of the HOA. By following these tips, you can grow in the ease with which you read and understand crucial financial reports.
1. To begin with, learn which accounting system your HOA uses—cash accounting or accrual. In cash accounting, you record income as you receive it and expenses when you pay for them. With accrual, you record expenses as they are incurred—even if you have not yet paid for them—and you report income when you earn it, not necessarily when you receive it. Ask a senior board member which system your HOA uses.
2. Take a long view of your HOA’s finance. This is especially important if you use a cash accounting system. Yes, it is important to remain aware of the here-and-now financial health of your association, but it is equally important to think about any major, upcoming expenses that you know about.
3. Know which state laws impact your financial reporting. In some states, certain types of financial reports are mandated. This is another good question to take to senior board members.
4. Make sure you understand what is denoted by each of the budget categories you are tracking. Ideally, your HOA uses fairly specific categories—like “landscaping” or “pool maintenance”—instead of something more general, like just “maintenance.”
5. Keep tabs of your HOA budget both monthly and annually. This is helpful for getting a big-picture view, and also for spotting the seasons that tend to bring the greatest expenses.
HOA Financial reporting can take some getting used to, but, by working with experienced board members or with your HOA management company, you can grow in your understanding of how it all works!