Financial statements offer a window into the health of a company, which can be difficult to gauge using other means. While accountants and finance specialists are trained to read and understand these documents, many business professionals are not. An ability to understand the financial health of a company is one of the most vital skills for aspiring investors, entrepreneurs, and managers to develop. Armed with this knowledge, investors can better identify promising opportunities while avoiding undue risk, and professionals of all levels can make more strategic business decisions. The frequency of preparing an HOA statement can be different with different HOAs and also by varying state laws.
Straying from the regular schedule only causes issues between the board members and homeowners. When dealing with financial information, it is best to be open and honest in as much detail as is appropriate. Association managers should also consider annual audits of other community management processes. Board procedures may need to be changed to adhere to new laws, and homes with new owners could have out-of-date contact information that needs to be updated. Strong vendor relationships are essential for your association management company and the HOAs you serve. A lot of logistics and planning go into keeping the communities secure, safe, and clean.
Accounts Payable Report
If the association has a management company or an independent bookkeeping company, the actual reconciliation will be done by that firm. However, it is important that the association’s Board of Directors (and the manager, if they have one) carefully review this reconciliation AND they compare it with an original bank statement. Most banks will provide an additional original bank statement to the association’s treasurer. The Income Statement is a formal financial statement that summarizes the association’s operations (revenues and expenses) for a specific period of time usually a month or year.
If statements are self-prepared, make sure to back up all financial records. In the unfortunate event that the files are deleted, become corrupted, or the preparer can no longer maintain their responsibilities, the board still has a copy of their financial records. For starters, if records are kept consistently, association directors can look back on previous financial years hoa accounting to identify patterns that could affect the current budget and adjust accordingly. If detailed records are not kept, it can be near-impossible to keep track of delinquent dues or know how much money is available to budget for community maintenance and new projects. The most common mistake that people make when preparing HOA financial statements is not adding enough detail.
The Complete Guide to HOA Financial Management
Whether you’re a board member, property manager, or just a curious homeowner, this will help you understand the financial workings of your association better. How to Read the HOA Bank Reconciliation Report Financial Statement
The main purpose of this HOA financial statement is preventing fraud – and it is very easy to tell what is happening in the report at a quick glance. There are lines that show if there are checks or payments that have not cleared as well as the current account balance – but the #1 most important line to look at is the “Difference” line. This could lead to losing focus and moving even farther away from your goals than your HOA team was to begin with. The categories and format of the Balance Sheet are based on what are called Generally Accepted Accounting Principles (GAAP). These principles are the rules established so that every business prepares their financial statements the same way.
Homebuyers can also have access to such reports, as assessing the financial health of the association will help them make a decision on whether or not to buy into the community. While it might seem intimidating at first glance, a thorough understanding of its components and regular reviews can demystify this document. In combination with the balance sheet and other financial statements, the income statement can provide a holistic picture of your association’s financial health. It will depend on state regulations, community goals, and the size of the community.
How to Read Financial Reports for your HOA or Condo Community Webinar Recording
Reserve studies reveal to HOA managers and board members the life left in these structures and how much it will cost the association to replace them when they wear out. From this analysis, the board, working with a management company, can determine the budgetary dollar-amount required to be set aside each year. An HOA reserve study is an in-depth analysis of the physical condition of your associations’ capital components.
It is, in effect, the back-up for that line item providing the detail for who is owed money. Just like in the Balance Sheet lesson, this association has two funds and this Income Statement displays both funds side by side. Some Associations might choose to produce a separate Income Statement for each fund, and that is perfectly acceptable. This information is used by the board to determine if there are any categories that need to be worked on or fixed, as well as to plan for future expenses. Utilize technology that will relieve growth pressure and adjust to your changing needs.