Management companies: Learn how to help HOAs strengthen their cash flow and budget
When a community association hires you as their management company, chances are they’ll need help with their finances. Managing cash flow and budgeting can be a major problem for HOAs and condo associations, as these organizations should be run like a business, which can be a challenge for the board members to navigate.
If you’ve been hired by an HOA that’s in financial trouble, here are the key areas in which you can help them turn things around.
Cash flow management
One big area that you can help with is the HOA’s cash flow management. Many associations may not have a handle on their expenses. Without a positive cash flow, the association will be headed toward financial problems and debt accumulation.
Review all expenses and forms of revenue. Changes can be made to the number or types of vendors the HOA works with, or more affordable options for equipment can be used.
Look at the member fees and figure out if assessments are needed to cover a special maintenance need or project or if there are any reserve funds.
Coming up with ways to foster positive cash flow is an important step that you can help associations realize with a thorough review and realistic recommendations.
Part of analyzing vendor relationships is looking through contracts with vendors, insurance companies, and other third parties. Is work being done as stipulated in the contract? What are the payment terms? Are fees reasonable compared with other vendors in the area?
Also, look at any terms that may not benefit the association or those that are unreasonable. Vendor problems can turn out to be major headaches and financial nightmares, so it’s important to vet all vendor contracts.
Homeowner fees and collections
It’s also your responsibility to oversee billing and applying any laws and regulations to HOA practices regarding collections. If homeowners are delinquent on payments, make sure that the HOA complies with the governing documents and any applicable laws.
Send out delinquent notices and inform the board of any delinquent accounts. In some cases, legal action may be necessary for the collection process, so management companies are typically responsible for handling communications and coordination with the HOA’s lawyer.
Once cash flow is analyzed, and vendor contracts are vetted, it’s time to work on the annual budget for the HOA. There are many helpful tools and forms of budgeting software you can implement for the HOA that makes keeping track of finances simpler.
You’ll oversee reviewing billing each month, managing member dues and any assessments, record keeping, and ensuring the budget is being adhered to. Any changes in circumstances will need to be reported to the board.
You’ll also help the HOA create estimates and forecasts for the future based on past budgets and current circumstances and create monthly financial statements. An HOA that has a lot of debt will need guidance on how to handle it over a set period.
A reserve study is an analysis of an HOA’s finances to predict viability for the future and assist in planning and budgeting. Some states mandate reserve studies, but even if you live in a state without this requirement, they’re important to conduct annually to keep the association’s finances on track.
These studies ensure that HOA budgets make room for reserve funds each year to cover unexpected costs that arise when equipment needs to be replaced or repaired. For example, costs to fix a leaky roof or pipe, a damaged piece of exercise equipment, or an issue with the community pool.
HOA managers are no strangers to sudden costs that add up quickly, so a reserve study ensures that the association has money saved. Typically, the budget will allocate a portion of dues for the reserve fund.
Without a reserve fund, special assessments or membership dues will have to be increased to handle these expenses, which can cause problems within the community.
As a community management company, you need all the latest tools that streamline your job. VendorSmart is a web-based platform where vendors and community managers can connect. Because vendor relationships are a big part of financial stability for an HOA, you need a tool that allows you to vet vendors and manage contracts and compliance documents in one place. Contact VendorSmart to get started today.