Working on an HOA Management Board means familiarizing yourself with some of the important financial documents of the association—and chief among them is the HOA Balance Sheet. No other document provides the same kind of “snapshot” of what the association’s financial situation is, which makes it vital for planning the future of your community. That said, analyzing one isn’t necessarily easy, at least not if you don’t already have a background in finance. Here are a few quick tips—what to look for on your HOA balance sheet.
First, familiarize yourself with some basic financial terminology. Know that “assets” are positive things—they’re the cash in your bank account, and all your investments. “Liabilities,” meanwhile, are negative. They represent what your association owes. And “equity” is kind of a “paper term”—it might be represented as your current yearly income or loss.
After you’ve got those basic concepts down, look at your HOA balance sheet and determine whether your equity is positive or negative. Positive equity is, naturally, a good thing. It means your association has more money than it owes. And of course, negative equity is the opposite. That means you’re in the hole!
Note, however, that positive versus negative equity reflects not only what you have in your bank account, but what you could raise—a complicating factor that you’ll want to be mindful of.
So what do you look for on the HOA balance sheet? Basically, what you’re looking for is that the Assets are equal to the Liability and Equity. If they are, then congratulations—your association’s balance sheet is, indeed, balanced! Next, simply make sure that the equity is positive. A board does not want to spend more than it takes in, obviously, so, if your equity is negative, you’re going to need to make some changes—urgently!