Common HOA Board Member Mistakes > Poor Financial Management
It’s not uncommon for HOA members to be unfamiliar with budgeting and reviewing the finances of the association. Even for those individuals with finance experience, the majority of the work is done by accountants in another department. Therefore, reviewing and managing finances can be a challenge for many board members. As one of the biggest mistakes in HOAs, failing to stay on top of the budget can have devastating effects of the association, which is why we’ve complied some tips to stay afloat. Even more importantly, address your insurance needs with an LA HOA Insurance policy.
Understand your accounting system.
According to HOA Leader, if you’re not familiar with accounting, you must first know what kind of accounting method—cash or accrual—your association uses. With a cash accounting method, you record income as you receive it and expenses as you pay for them. With an accrual method, you record expenses when you incur them—even if you haven’t made the payments yet—and you record income when you’ve earned it even if you haven’t received the money yet.
If you’re implementing the cash method, then it’s important to factor in major expenses down the road. Just because it’s in the bank right now doesn’t mean it will be when it comes time for a major renovation or upgrade. Be realistic about how much money comes in and how much is going out.
Break it down.
Categorizing expenses can help you track financials better. From landscaping to maintenance to vendors, creating subcategories can allow a realistic and easily legible look at your financials. Reviewing your expenses this way can prevent any surprises from arising, as well.
Prevent skewing accounts.
If you add or subtract money from the wrong account, the whole ledger can be skewed. Be careful to add and deduct money from the right accounts to keep everything in order, make expenses easy to track, and find mistakes with ease.
If you or your board members aren’t the best at reviewing the financials and don’t understand the right questions to ask, don’t be shy about inquiring for help. This is a good time to enlist the help of a property management company to ensure your books are kept up to date and accurate.
About Scott Litman Insurance Agency
At Scott Litman Insurance Agency, we are dedicated to protecting HOAs like yours. We have a unique understanding of the industry and the common risk exposures that you face in your daily operations. In fact, we find that 90% of the policies we review are missing coverages that violate the Covenants, Conditions, and Restrictions (CC&R), exposing the board, HOA and management to lawsuits – which is why our comprehensive policies are tailored to meet your specific needs at competitive prices. For more information about our products, contact our experts today at (818) 879-5980 ext. 201, or fill out our online form.