Smart HOA Finance
Understand the Money
Board members don't need to be accountants. They need to understand what their association's financial reports reveal and when to ask questions.
What Board Members Should Understand
Where the Money Goes
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Assessments and other income
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Operating expenses
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Reserve contributions and spending
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Major financial obligations
What the Numbers Are Telling You
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How much cash is available
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Whether results are close to budget
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How much is held in reserves
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What changed from the prior period
The Financial Reports Tell Different Parts of the Story
No single financial report tells the whole story. Together, these three reports show the association's financial position, income and expenses, and results compared with the budget.
Balance Sheet
Shows the association's assets, liabilities, and fund balances at a particular date.
Income & Expense Statement
What income and expenses were recorded during the period.
Budget-to-Actual Report
How actual income and expenses compare with the approved budget.
Bank statements, reserve information, receivables, payables, and transaction detail provide additional information when the board reviews or verifies the numbers.
A Simple Financial Picture
An association uses assessments to pay operating expenses such as insurance, landscaping, and management. Some money is also set aside in reserves for future repairs and replacements.
The board should understand whether the association can meet current expenses while preparing for future needs. A healthy bank balance alone doesn't tell the whole story.
Questions to Ask
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Are we operating close to budget?
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How much operating cash is available?
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Are reserves being funded as planned?
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What significant changes occurred this month?
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Is there anything in the financial reports we don't understand?
Next Step: Review the Money
Once your board understands the financial reports, the next step is reviewing them regularly, recognizing important changes, and following up on questions.