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What Are HOA Reserve Funds? When Are They Used?

In a lot of ways, homeowners associations are just like corporations. They operate with a budget, are headed by a set of board members, and manage a reserve fund. But, what are HOA reserve funds anyway?


What Are HOA Reserve Funds?

Simply put, a reserve fund is a savings account. It contains funds that the homeowners association will use to pay for the cost of future repairs and replacements. Homeowners association reserve funds differ from operating funds in terms of use. While both are funded by the homeowners, the operating fund covers the association’s regular expenses, whereas the reserve fund covers major repairs and replacements.

For homeowners associations, having a reserve fund is essential. Without a reserve fund, an HOA would have no way of paying for expensive repairs and replacements in the future. Every asset and structure has a useful life. Once that reaches the end of its useful life, it needs to be replaced or repaired. Otherwise, it could pose a threat to the safety of residents.

In some scenarios, an HOA will turn to the homeowners for immediate funding. If, for example, a particular building needs urgent foundational repairs, the association will resort to levying hefty special assessments to cover the cost. Neither scenario is ideal, as they can put homeowners in a financial bind or place them in imminent danger. With a properly funded reserve account, HOAs can avoid all of this.


What Can HOA Reserve Funds Be Used For?

In general, reserve funds are used to cover the cost of major repairs and replacements in the future. The exact specifics of this will depend on the bylaws or CC&Rs of the community. Some associations allow the board to use the reserves to pay for unexpected costs, i.e. those that do not occur on a regular basis. Others use it exclusively for any assets that require large repairs or replacements. And then there are also associations that set aside reserves to pay for construction projects.


Determining Adequate Reserve Funding for HOA

homeowners association reserve fundsWhen talking about an HOA’s reserves, one question that always seems to pop up is exactly how much to put in the fund.

But, reserve fund accounting for HOA communities is not as easy as simply offering a dollar amount. Homeowners associations have different needs, and even the type of association can influence the possible repairs and replacements it will require in the future. For example, a condo community may need to replace or repair its elevators in the future, but not all single-family communities have elevators.

To know the adequate level of funding for your reserves, it is important to hire a professional to conduct a reserve study. A reserve study will determine the estimated remaining useful life of each asset in your HOA and how much it will cost to repair/replace them. This will give the HOA board an idea of how much the HOA will need to save and how long it has to do so.

Now, a lot of things can change after the completion of a reserve study. This is why it is a good idea to update the study once every few years. Some states even require associations to perform reserve studies, such as California, Virginia, and Colorado. And then there are also a few states that require HOAs to maintain a reserve fund but don’t require reserve studies. Massachusetts and Minnesota are two that come to mind.

Ideally, every homeowners association should have a fully funded reserve account. That means the HOA can cover 100% of the cost of future repairs and replacements. Unfortunately, this is not the reality for most associations. A good rule of thumb, though, is to reach at least 70% of the association’s requiring reserve funding.


Who Pays for the HOA Reserve Fund?

The money used to maintain an association’s reserve fund comes from the homeowners themselves. Reserve contributions are included in the calculations for the upcoming year’s dues. While the HOA board is in charge of this responsibility, board members are not exempt from the contributions. Both board members and regular homeowners have to pay their dues and contribute to the reserves equally.


Borrowing HOA Reserves: Is It Legal?

Generally, an HOA board should not spend the reserve fund for anything other than its intended purpose. But, there are times when an association will find itself in dire need of money to pay for operating expenses. In this case, the board may be able to make an exemption based on state laws and the governing documents.

For instance, California Civil Code Section 5515(a) allows HOA boards to authorize the temporary transfer of funds from the reserve account to the operating account without membership approval. This is only done, though, to meet short-term cash flow needs. However, the board must include notice of intent to transfer funds in a notice of the board meeting. The board must also restore any borrowed funds from the reserve account within one (1) year.


Investing Your HOA Reserve Funds

hoa reservesBecause the money in an HOA’s reserve account tends to sit untouched for long periods of time, many boards consider the possibility of investing the funds. The board generally has the authority to do this, though it is still worth checking state laws and the association’s governing documents.

When considering potential investments, an HOA should go for a plan that offers no risk at all. Keep in mind that the money in the reserves does not belong to the board. As such, it is important to be prudent with the money.

In addition to risk, boards should also take liquidity into account. An HOA should be able to withdraw money from its reserves at a moment’s notice. Thus, it is best not to go for investments that have a lock-in period. The only downside to a risk-free investment plan is that it does not offer high yields. Sometimes, though, a savings account is enough to keep the money safe, at the ready, and still earning interest.


The Need for Professional Help

It is essential for homeowners and condo associations to maintain HOA reserve funds. But, you can’t truly know how much you need in the account if you don’t perform a reserve study. Reserve studies can’t be done by the board alone. They require the assistance of certified professionals, such as accountants and engineers. It also helps to have good HOA management software to keep track of your reserve study and level of funding.

Condo Manager is an all-around HOA management software that both homeowners associations and HOA management companies use. Call us today at (800) 626-1267 or contact us online for a free demo.



HOA Debt Collection: Is The HOA Taking Advantage?

Consumers are protected by certain laws when it comes to debt collection. Chief among them is the federal Fair Debt Collection Practices Act. But, does this law apply to homeowners associations, too?


Fair Debt Collection Practices Act Definition

The Fair Debt Collection Practices Act (FDCPA) is a federal law governing the collection of debt. The law was passed by Congress in 1977 and aims to prevent deceptive, abusive, and unfair debt collection practices. According to the Act, debt collectors are not allowed to harass consumers or employ deceptive tactics when attempting to collect on their debts. In addition to what debt collectors can’t do, the Act also defines what debt collectors must do when attempting to collect a debt.

Are HOA Collections Governed by the FDCPA?

Homeowners living in HOA communities have an obligation to pay monthly dues to their association. The HOA then uses these dues to fund the many expenses required to keep the community in operation. These expenses can include but are not limited to maintenance costs, insurance premiums, and management fees.

Like any payer-payee relationship, though, HOAs are not immune to delinquencies. It is not uncommon for homeowners to default on their monthly fees. Usually, these delinquencies result in late fees, the suspension of privileges, and even lawsuits. In some cases, HOAs will also attach a lien to the delinquent owner’s property and even initiate foreclosure proceedings. Associations do all of this in an effort to collect the debt delinquent homeowners owe.

Sometimes, though, an association will also transfer the bad account to a third-party agency as part of its HOA debt collection policy. This is where the FDCPA comes into play.

In general, the FDCPA does not recognize homeowners associations as debt collectors. As such, the Act does not typically apply to them. The FDCPA only applies to debt collectors, i.e. any entity or individual whose primary business is to collect debt on behalf of third parties. So, while the FDCPA may not apply to HOAs, it does apply to the collectors HOAs employ. Many courts have also ruled that the FDCPA can apply to attorneys if it collects debts or unpaid dues on the association’s behalf.


Communication Standards for HOA Collection by Third Parties

According to the FDCPA, debt collectors must use any communication that even the “least sophisticated consumer” can understand. This standard is in place so that debt collectors don’t use fancy or complex language in an attempt to confuse or deceive the consumer. It offers protection to even the least experienced individuals. Additionally, using simple language also eliminates vague terms, which can lead to misunderstandings.

Adhering to this standard, the FDCPA requires debt collectors to provide the following communication to a consumer, either in oral or written form: “This communication is from a debt collector in an attempt to collect a debt. Any information obtained will be used for that purpose.” Every succeeding communication should then include either “This communication is from a debt collector,” or “this is an attempt to collect a debt.”

Following the initial communication, the debt collector must then provide the following within five (5) days in written form:

  • Amount of debt owed;
  • Name of the creditor;
  • A statement saying that the consumer has 30 days to dispute the debt’s validity or else the debt will automatically be deemed valid by the collector;
  • A statement saying that, if the consumer disputes the debt’s validity within the timeframe, the debt collector must then secure verification of the delinquency or a copy of the judgment. The collector must then mail a copy of that document to the consumer; and,
  • A statement saying that the debt collector will provide the name and address of the original creditor if the consumer supplies a written request to do so within the 30-day period.


Prohibited Acts Under the FDCPA

In accordance with the FDCPA, banned acts include but are not limited to the following:

  • Talking about the debt with any party other than the consumer
  • Calling the consumer before 8 a.m. or after 9 p.m.
  • hoa collectionsTalking to the consumer when an attorney already represents them
  • Any acts of harassment or abuse, such as:
    • Threatening the consumer with violence or other illicit acts
    • Using profane or obscene language
    • Making incessant calls
  • Making false or misleading statements, such as:
    • Falsely introducing themselves as an attorney
    • Implying or stating outright that the consumer will face criminal charges upon failure to settle the debt
    • Threatening the consumer with consequences that the debt collector can’t legally do
  • Attempting to collect an unauthorized amount


Who Handles Fair Debt Collection Practices Act Violations?

Debt collectors have been known to abuse their position and employ illegal tactics. Consumers who don’t know the law well enough will sometimes fall prey to these unfair practices. If a consumer or homeowner believes they are a victim of FDCPA violations, they can file a complaint with one of the following agencies:

  • Federal Trade Commission. The FTC is the main agency inc charge of enforcing the Fair Debt Collection Practices Act.
  • Consumer Financial Protection Bureau. One of the CFPB’s many responsibilities is enforcing the FDCPA.
  • State Attorney General’s Office. For state-level complaints, consumers can reach out to their State Attorney General’s Office. Go to their website for more information.

As per the FDCPA, consumers can file a federal claim for actual damages as well as additional damages up to $1,000. The claim can also include coverage for attorney’s fees and other reasonable costs.


Are HOA Management Companies Debt Collectors?

While all courts recognize HOA dues as consumer debt, there is some debate as to whether or not HOA management companies count as debt collectors. There is no universal answer to this, as situations should be evaluated on a case-by-case basis. That said, it really comes down to the primary purpose of the management company.

If an HOA management company’s primary services consist of collecting unpaid fees, then courts may deem it a debt collector. In that case, the FDCPA does apply to the management company and its practices. In contrast, if a management company’s primary focus is maintaining common areas, it might not fall under the FDCPA or what counts as a debt collector.


Something to Think About

The Fair Debt Collection Practices Act exists to prevent debt collectors from using unfair, deceptive, and abusive tactics when attempting to collect a debt. At face value, the FDCPA may not seem like something HOAs should worry about. But, considering the legal implications of associating with a non-compliant third-party collector, HOAs would do well to carefully select a collection agency.

Don’t want to outsource your collection efforts? Condo Manager makes dues collection and delinquency tracking easier with automated processes. Call us today at (800) 626-1267 or contact us online for a free demo.



HOA Account Delinquency Report: Does Your HOA Need One?

The HOA account delinquency report is an essential part of the financial reporting arsenal. Unfortunately, not all association boards know how to prepare this important report.


What Is an HOA Account Delinquency Report?

A delinquency report is a statement showing all of the delinquent accounts in a given homeowners association.

Let’s face it — nobody is perfect, and there are bound to be a few or more owners who fail to pay their dues on time. This can happen for any number of reasons, including financial struggles or simple negligence. It is the duty of homeowners to pay their dues on time. Similarly, it is the duty of the HOA board to make sure dues are collected.


Understanding How Unpaid Dues Affect the HOA

account delinquency reportDues and assessments are the lifeblood of every homeowners association. Without them, an HOA community would suffer detrimental consequences.

Remember that homeowners associations have the primary goal of maintaining the community to preserve property values. Maintenance, of course, comes with a price. There are many expenses an association must pay for, including but not limited to landscaping, cleaning, insurance, repairs, and professional management.

When an association falls short of dues, it is unable to cover these budgeted expenses. Faced with such a conundrum, most association boards will either turn to cost-cutting or levy special assessments. Both of these options are unfavorable to owners.

First of all, cost-cutting can be dangerous when done drastically. If there are a lot of delinquent accounts, the HOA will be forced to remove some major expenses or significantly cut back on them. This jeopardizes the quality of service.

Special assessments, on the other hand, are unfair to a lot of homeowners. While most boards have the power to impose assessments, delinquent owners usually fail to pay these as well. It leaves the burden of covering the deficit on the paying owners’ shoulders.


The Importance of an HOA Account Delinquency Report

It is easy to grasp how outstanding dues can negatively impact any homeowners association. But, where does the HOA account delinquency report come in?

As you might make out from its name, this report is specifically designed to track and monitor the delinquent accounts in your HOA. It gives boards a way to quickly determine how much owners owe to the association. With this information, you can make the necessary budget adjustments and decide whether or not to levy special assessments to meet your shortfall. It also makes it easier to identify who has unpaid dues so you can refer them to a collection agency if need be.


What Is Included in an HOA Delinquency Report?

The HOA delinquency report is rather simple in its format, but it shows everything you need to know about the delinquent accounts in your community. While it may change from one association to another, this report generally consists of the following:

  • Delinquent owner information (account number, lot or unit number, name, and address)
  • Amount of unpaid dues, typically divided according to age:
    • Current (unpaid dues below 30 days)
    • Over 30 days
    • Over 60 days
    • Beyond 90 days
  • Total unpaid dues per account
  • Grand total of unpaid dues per age

The report is similar to the HOA accounts payable report in that it shows aged unpaid balances. But, unlike the AP report, the HOA account delinquency report shows debts owed to the association. It also differs from the accounts receivable report. The AR report shows all outstanding invoices, whereas the delinquency report only shows debts in the form of unpaid dues by homeowners.


How an HOA Management Software Can Help

A delinquency assessment report is relatively easy to prepare by hand. But, as debts age and as owners settle their balances, it can become increasingly difficult to keep the report updated. Whether you are preparing or updating an HOA account delinquency report, management software can assist you in many ways.


1. Accuracy

One of the most common mistakes you can make when preparing a delinquency report is missing information. When you have inaccurate numbers or names, you can misattribute the unpaid dues and cause a larger issue. You might end up erroneously erasing someone’s debt or inadvertently adding to it.

Considering accuracy is the foundation of all financial reports, a faulty delinquency report can throw your entire operation into chaos. It will take more time and effort to retrace the numbers.

Thankfully, with the help of software, you can ensure accurate details. After entering all the necessary information (such as the dues amount, the deadline, etc.), the report will basically prepare itself.


2. Efficiency

Time-wise, it is inefficient to prepare your delinquency report manually, especially if you maintain a hard copy (or a single soft copy) of the report. This means only one person can update the report or has to literally pass it on to another board member. Transferring information from one report to another can also be a hassle.

When you use software, though, the entire process is reduced to simple clicks. You can easily tag an account as delinquent or for referral to a collection agency (if you use one). You can also update the report faster since it is largely automated. Beyond that, you can generate the report instantaneously whenever you need to. This allows any board member to gain access to the report, provided they have clearance or enter the correct password.


3. Confidentiality

 hoa delinquencyWhile it is required for some associations to share the total delinquency amount to homeowners, a majority are not allowed to disclose detailed information. In Nevada, for instance, the law prohibits associations from disclosing private homeowner information.

California, on the other hand, does not explicitly forbid publishing the names of delinquent owners, though doing so can be viewed as a violation of privacy according to Civil Code Section 5215. While some release such information to shame owners into settling their dues, experts agree that it is best for the association to refrain from employing such a tactic as it can result in liability.

Manually maintaining a delinquency report is a problem because it may accidentally end up in the wrong hands. But, with software, you can exercise more control over access and report generation. You can also choose to keep the program offline so that you can only gain entry from a specific location.


Get the Best for Your Homeowners Association

An HOA account delinquency report is definitely an integral accounting tool that every association should use. Preparing and maintaining it, though, can come as a challenge without automated assistance.

This is where Condo Manager comes in. Make accounting and financial reporting easier using our comprehensive management software. We have programs designed for self-managed communities as well as large-scale companies. Give us a call today at (800) 626-1267 to learn more information or contact us online for a free demo.



HOA Accounts Payable Report: What Is This For?

The HOA accounts payable report is an important tool for measuring an association’s debts. Unfortunately, not all board members fully understand how it works.


What Is an HOA Accounts Payable Report?

As with other organizations, a homeowners association operates with the help of a financial system. Homeowners pay monthly dues, which the association then uses to fund various expenses required to maintain the community. Not all of these expenses, though, are immediately paid when they are incurred. More often than not, vendors will perform the work and send a bill later on. Some require downpayments first, with the rest being due upon completion of the work.

These are accounts payable.

Any debts the association has to other parties are considered accounts payable. If your HOA owes money for landscaping services, your accounts payable increases. The same goes for when you owe money for construction work, maintenance and repairs, supplies, and the like.

An accounts payable report is a financial report that details your association’s debts. Basically, it contains all of your accounts payable or AP for the period.


What Is Included in a Homeowners Association Accounts Payable Report?

It is easy to get lost in a sea of financial data if you have no prior accounting experience. This is particularly true for the more complicated statements such as balance sheets and general ledgers. But, the accounts payable report is rather simple — certainly far easier to understand than a balance sheet.

The components of an HOA accounts payable report are as follows:

  • Vendor names
  • The amount your association owes to each vendor
  • How long you have owed the debts to each vendor
  • Whether any payments are past due

For the duration of the debts, you will typically encounter five columns separated by 30 days. The first column contains current debts, those that are under 30 days old. The second column is for debts that are 1 to 30 days past due, the third column for 31 to 60 days, the fourth column for 61 to 90 days, and the final column for debts that are over 90 days past due. Because debts age, the accounts payable report frequently changes, with debts moving from one column to another when they hit a certain point.


The Importance of an HOA Accounts Payable Report

Some HOA board members might wonder why preparing and maintaining an accounts payable report is even necessary. While it might not be for associations that use the cash basis of accounting, associations that use the accrual or modified accrual methods will greatly benefit from the report.

For one thing, an HOA accounts payable report will help you manage your debts. You can track how much you owe, how long you have owed them, and to whom you owe them. The report is organized in such a manner that you can visualize your debts at a glance.

Tracking your debts can help your associations in two ways:


1. Save Money

Firstly, it will reduce the occurrence of interest. When you pay your debts on time, it eliminates vendors charging you interest or late fees. This will save your association a lot of money in the long run. With this report, you can settle your debts when they become past due or pay those that have been past due for longer.


2. Maintain a Good Reputation

Secondly, tracking your debts will allow you to manage them better and maintain your reputation as a good payer. Nobody likes doing business with bad payers. And word can spread around relatively fast among vendors — even faster when you live in a small town. To maintain a good working relationship with vendors, you need to pay your debts on time. Again, the HOA accounts payable report can help you with this.


Accounts Payable Report vs Accounts Receivable Report

If you know anything about accounting, then you know the difference between accounts payable and accounts receivable. Accounts payable is what your association owes, while accounts receivable is what other parties owe to your association.

The accounts receivable report is basically the complete opposite of an accounts payable report. An AR report lists down all of the names of your debtors, how much they owe you, and how long they have been due. It provides you with a way to easily track your receivables.

Sometimes, associations will have a separate delinquency report from the AR report. The delinquency report consists of all the delinquent accounts in your association. It contains the names of the owners who are delinquent, how much they owe, and how long the amounts have been due.


The Role of Management Software

homeowners association accounts payable reportUnfortunately, not all HOA board members have a background in accounting. This makes it difficult to prepare financial reports, including the accounts payable report. While many turn to HOA management companies or accountants for help, another alternative is to invest in software.

With management software, you can seamlessly generate an AP report with the click of a button. All you have to do is enter your payables and tag them to the appropriate vendor. The software will do the rest, including aging. This way, you can generate a report in real-time.

Apart from preparing an accounts payable report, HOA management software can also help your board with a multitude of other tasks. This includes invoice processing, delinquency tracking, dues collection, bank reconciliation, and financial statement generation. The capabilities of software also extend to other aspects of managing an association such as homeowner communication, task scheduling, work order processing, and violations tracking.


Helping HOA Board Members Everywhere

The HOA accounts payable report is just one of the many financial reports HOA boards must prepare. Between accounting and other management tasks, board members often find themselves feeling overwhelmed with their duties. Self-managed communities will benefit from investing in HOA management software that comes equipped with full accounting capabilities.

This is where Condo Manager comes in. We offer comprehensive programs designed for self-managed communities as well as HOA management companies with many clients. If you want to know more about our product, call us today at (800) 626-1267 or contact us online to schedule a free demo.



HOA General Ledger: How Important Is It?

An HOA general ledger is a valuable tool for tracking and measuring your association’s finances. But, many HOAs simply don’t realize how important this financial report is.


What Is an HOA General Ledger?

The general ledger is the prime repository of a homeowners association’s financial data. It serves as the association’s ongoing record of all financial transactions incurred by the HOA. This includes all assets, liabilities, income, and expenses. The entries come in the form of account titles and their corresponding numbers sourced from the chart of accounts.

While not technically considered as one of the financial statements of an HOA, the general ledger does serve as their pre-requisite or basis. Thus, it remains an essential tool in accounting and financial management.


How Often to Prepare an HOA General Ledger

Anyone who has ever worked with financial statements knows that these statements are prepared on a regular basis. Typically, this comes in the form of monthly, quarterly, or annual reports. The general ledger, though, is different.

Much like any other organization, homeowners associations must continuously update their general ledger. Whenever a financial transaction occurs, the general ledger must reflect that. For instance, if your HOA board made a cash payment to a vendor, that should immediately be accounted for within the general ledger. In doing so, you can look at your general ledger at any given time and be able to determine the association’s financial standing.


What Is Included in an HOA General Ledger?

assets and liabilities | homeowners association general ledgerThe general ledger acts as the master copy of all financial transactions in a homeowners association. It contains all accounting data, including those posted from your sub-ledgers and journals. Therefore, an HOA general ledger should include all incoming and outgoing financial transactions.

Ideally, you should keep a separate ledger for each account. For homeowners associations, that usually means keeping a ledger for an operational account and another for a reserve account. It is entirely possible for an HOA to maintain multiple ledgers simultaneously.


HOA General Ledger: Checking for Accuracy

As with many financial tools and records, the general ledger is not impervious to inaccuracies. Due to human error, the general ledger can end up reporting false numbers, causing great misinterpretations and distress to your board. Remember that all other financial statements use the general ledger as a basis, so it is crucial to maintain an accurate general ledger. A flawed ledger can lead to inexact financial reports, thereby resulting in misinformed decisions and financial ruin.

A good way to verify the accuracy of your general ledger is by cross-referencing it with other financial records. This includes bank statements, invoices, receipts, and the like. In doing so, you can avoid accidentally misreporting numbers. Practicing this regularly can also help prevent and thwart fraud.


The Importance of a Homeowners Association General Ledger

When you understand how HOA accounting works, it is easy to see why the general ledger is so critical to a homeowners association. After all, the general ledger is the foundation of HOA accounting. Without it, you have no way of tracking and updating your financial transactions. It is also impossible to prepare financial statements, such as the balance sheet and income statement, without the general ledger.

In addition to this, the general ledger makes it easy for your treasurer or accountant to prepare your tax returns. The general ledger compiles all financial data in one neat place, so you can quickly refer to it for any clarifications. In a way, it serves as a record of your financial history. As such, if you need to look back and check a transaction from years ago, you can always turn to your general ledger.


Types of Accounting Methods

The general ledger is a master repository of your association’s financial data, but it still follows a standard format. Every transaction affects at least two accounts. And while you can, in theory, simply write down all of your transactions as they are, adhering to the accepted format allows you to easily see the movement of accounts.

For general ledgers, there are three accounting methods homeowners associations can use — cash accounting, accrual accounting, and modified accrual accounting.


Cash Accounting

This method of accounting only tackles transactions made in cash. In other words, you will only record transactions that affect your cash account. When you earn revenue or incur expenses, such transactions will only appear on your general ledger when the money actually passes hands.

Cash accounting is, by far, the easiest approach to HOA accounting. This is because it involves the least amount of work and detail. Unfortunately, its simplicity is also its downfall, as the cash accounting method does not give you a very precise picture of your finances. Using this method may cause you to think you have more money than you actually do and end up overspending.


Accrual Accounting

Generally Accepted Accounting Principles | hoa general ledgerAccrual accounting is the most widely used approach because of its accuracy and reliability. It is also the only accounting method that conforms with the Generally Accepted Accounting Principles (GAAP).

Using this method, you report both revenues and expenses when they happen as opposed to when money passes hands. The accrual approach involves the use of receivable and payable accounts.

For example, as soon as HOA fees become due and you send out the invoices, you will record them in your ledger, and the “Dues or Assessments Receivable” account will increase. When homeowners start paying their dues, this receivable account will decrease and your cash account will increase.


Modified Accrual Accounting

The modified accrual approach combines the principles of the first two methods. For this method, revenues follow the accrual approach and expenses follow the cash approach. You record revenues as you earn them instead of when you receive the money. In contrast, you record expenses when you disburse money instead of when you incur them. While the modified accrual method gives you an accurate view of your revenues, the same cannot be said about your expenses.


The Role of HOA Software

As you can see, the HOA general ledger is an indispensable financial instrument used as both a master repository and a basis for all other financial reports. Given how essential it is to any association, maintaining it should be a top priority for treasurers and HOA accountants. Unfortunately, not everyone who volunteers for a position on the board knows how to use the general ledger.

This is where Condo Manager comes in. We provide our clients with comprehensive HOA management software, complete with accounting and financial reporting capabilities. Our software is perfect for both self-managed communities and management companies looking to make HOA management easier. Call us today at (800) 626-1267 or contact us online for a free demo.



What Is An HOA Cash Flow Statement?

Every homeowners association deals with money. Without proper controls and reporting, though, it can be easy to lose track of the association’s cash. This is where an HOA cash flow statement comes in.


What Is an HOA Cash Flow Statement?

A cash flow statement is a financial report that depicts the amount of cash and its equivalents moving in and out of an organization — in this case, a homeowners association. Many might compare it to an HOA income statement, but there is a stark difference between the two reports. While the income statement shows income and expenses affecting all accounts, the cash flow statement mainly shows how other accounts impact your cash position.

The cash flow statement is one of several financial reports that a homeowners association should know about. In some states, it is even mandatory to prepare financial statements every so often and present them to the membership. One example of this is Nevada (NRS 116.31038). Other associations are required to do the same as stipulated by their governing documents. If you want to avoid legal trouble, always check your state laws and governing documents for any financial requirements.


What Is Included in an HOA Cash Flow Statement?

The cash flow statement is a simple financial report that is typically divided into three parts:

  • hoa statement of cash flows Operating Activities. This part consists of cash sourced from and spent on business activities. For an HOA, that could mean revenue from dues and assessments, interest, fines, salaries and wages, and other operating expenses.
  • Investing Activities. Cash flow from investing activities includes changes in assets or equipment as well as anything considered as an investment. If you invest your reserves, this part of the statement would cover it.
  • Financing Activities. This is cash sourced from banks and investors as well as cash paid to shareholders. If your association took out a loan and paid it off, that would usually fall under this category.

Obviously, any changes from the balance sheet and income accounts will influence the statement of cash flow. For instance, if your accounts receivable (AR) decreases, that means that your association received more cash. A drop in the AR equates to someone paying what they owe to your association. In the same way, a decrease in accounts payable (AP) means a decrease in your cash account. When AP goes down, you are paying your outstanding debts and so money flows out of the HOA.

Of course, AR and AP are not the only two accounts that can affect your HOA cash flow statement. There is a multitude of other accounts that can do so as well, including but not limited to prepaid insurance, salaries payable, prepaid assessments, and taxes payable.


The Importance of an HOA Statement of Cash Flows

If the cash flow statement only measures how much cash the association has, then is it even worth the trouble? After all, homeowners associations are not businesses, at least in the traditional sense, so it must not be all that crucial to track its cash flow.

Many HOA boards operate with this dangerous mindset. The fact of the matter is, an HOA cash flow statement is essential to any association. This statement will help you evaluate how your association manages its cash position. It will allow you to identify how well your HOA earns revenue, funds expenses, and pays off its debts. If your association is bad at managing its money, the cash flow statement will reflect that. In turn, you can adjust your financial strategies and decisions accordingly.

Beyond using this report as an analytical tool, it also helps homeowners and potential homeowners understand the HOA’s financial health. Homeowners are, in essence, the stakeholders of an association. They want to know that the HOA is spending their money right.

On the other hand, potential homeowners can check an association’s financials and see how viable it is to purchase a property there. It helps them decide whether or not it is worth joining that particular HOA. After all, no one wants to invest in a poorly managed association. Bad money management can signal a larger problem and potential buyers don’t want any part of that.


The Role of HOA Management Software

hoa statement of cash flows On paper, the homeowners cash flow statement seems easy to prepare. But, it actually takes a lot of organizing, cross-checking, and discipline to properly put one together. Many companies have teams of accountants and professionals for this kind of task. Homeowners associations, though, typically only have their board to rely on.

There are many associations that seek professional help, whether in the form of a management company or an accountant. But, for some self-managed HOAs, the most favorable option is to invest in HOA software.

A management software comes with a comprehensive range of features, including invoicing and billing, collections, homeowner communication, violations tracking, and more. Many programs also typically come with accounting and financial reporting capabilities. This feature will allow your HOA board to track your income and expenditures as well as generate financial reports all from one place.

While it does take some effort to set up and get used to, the software eliminates many of the tedious and redundant tasks in an HOA. The best part is, you can generate financial reports any time you like, making it easy to assess the association’s financial health at a moment’s notice.


Track Your Financial Health More Efficiently

Considering how important the HOA cash flow statement is, no association should do without it. The statement of cash flow reports on your association’s cash position, allowing you to determine how financially viable your HOA is. It measures your ability to earn income and pay debts — data you can use to inform your future financial decisions.

Unfortunately, not every HOA board knows how to track their finances and prepare crucial financial statements. With the help of HOA management software, though, your self-managed association can stay on top of your financial activities in a more efficient and effective way. Call Condo Manager today at (800) 626-1267 to know about our product or contact us online for a free demo.



A Look Into The HOA Income Statement

The HOA income statement is a part of every association’s range of financial reports. Therefore, it is important to know what this statement does and what you can find on it.


What Is an HOA Income Statement?

An HOA income statement is a financial report that presents the association’s revenues and expenses for a specific period of time. Other terms used to describe this report include a profit and loss statement, a statement of financial results, or a statement of earnings.

This report details the association’s revenues in terms of source and amount. It also breaks down all of the association’s expenditures. The report then calculates the HOA’s net income (or loss) by deducting the total expenses from the total revenues.

Income statements are very flexible and can be prepared at any point in time. Associations, though, usually generate their income statements every month, quarter, and year.


What Is the Purpose of an HOA Income Statement?

What Is the Purpose of an HOA Income Statement?Homeowners associations function in much the same ways as a business. And just like a business, HOAs need financial statements to guide their financial decisions.

In fact, for many associations, it is mandatory to prepare financial reports on a regular basis as dictated by their governing documents or state statutes. For instance, Nevada associations are bound by NRS 116.31038 to review their finances and prepare a year-to-date financial statement.

Aside from being a requirement, though, the income statement helps associations in more ways than one. It is more comprehensive than a balance sheet in that it depicts your association’s revenues and expenses for a set period. A balance sheet, on the other hand, only shows you a general picture of your financial health.

Because the income statement is more detailed, it gives you a better view of your association’s finances for a given period of time. It shows you whether or not you are hemorrhaging money. If you end up with a net loss, that means you are spending way more money than you are earning. On the flip side, ending up with a positive net amount means you are heading in a good direction, financially speaking.

Once you have this information, you can then use it to inform your future decisions. Generally, a net loss signals you to cut back on your expenses. But, the problem can also stem from your income sources. In that case, examine your revenue stream to determine where your earnings are getting clogged. Perhaps some owners have stopped paying their dues, which would typically call for more stringent collection methods.


Components of an HOA Income Statement

For homeowners associations, an income statement consists of four general sections — gross profit, operational expenses, gains and losses, and net profit or loss.


Gross Profit

This depicts your association’s earnings before the deduction of expenses. It includes homeowner dues, fees, assessments, and fines. If you are preparing a monthly financial statement, then this should show the total revenue (before expenses) for the month covered.


Operational Expenses

The operational expenses section includes all the recurring costs incurred for the period covered. Some examples are landscaping fees, maintenance costs, management fees, insurance premiums, and the like. If your association pays for it on a regular basis, this is where it should go.


Gains and Losses

Not all revenues and expenses are recurring. One-time earnings or expenses fall under the gains and losses category. For example, if your association replaced street lighting or had the playground repainted, you would include those expenses here.


Net Profit or Loss

The final part of the report is your net profit or loss. This is the resulting amount after you deduct your total expenses from your total revenue. A positive net amount means your association did financially well during the period covered. On the other hand, a negative net amount should trigger a re-evaluation of your finances. Is this a one-time fluke or is there something more to the net loss you experienced?


The Difficulties of Preparing an HOA Income Statement

From a glance, it might seem easy to generate an income statement. All you have to do is plug in the numbers and push some buttons on a calculator, right?

Although the income statement is the easiest to prepare among all the financial reports, many people still trip up and make mistakes. And, as you may know, even the slightest of errors can turn the entire report askew. Mistakes result in an inaccurate report, which ultimately leads to uninformed decisions.

For example, if you made a mistake and forgot to include certain expenses (resulting in a high net profit), you might think your association made more money than it actually did. Come next month, you might end up overspending because of this miscalculation. Mistakes are dangerous and can ruin your association’s financial standing.

Preparing an income statement demands attention to detail. You must list down all of the revenues and expenses you incurred so that you don’t leave anything out. Make sure to itemize each one, too. Don’t just group all the expenses together under a single category.

This also means having to use other reports and records as references. Because everything is connected, you must take the time to record all financial transactions no matter the size. If you neglect or choose to report even just one transaction, it could throw off your entire budget.


The Role of Management Software

Management Software | hoa income statementWhile many associations hire an accountant or a management company to help prepare their financial reports, you can achieve equally great results with management software.

HOA management software allows you to automate a lot of transactions and financial records. It removes the need to write in every transaction multiple times in separate books. Instead, you only need to input it once and let the program do the rest.

The help of management software also allows you to generate financial reports, including an HOA income statement, with just the press of a button. You can generate these statements any time you wish, which is not only convenient but also lets you analyze the association’s financial direction without having to prepare an entire report from scratch.


Better Reports Lead to Smarter Decisions

The HOA income statement shows you the association’s net income or loss with great detail. Reviewing it allows you to identify any problem areas and jump to resolve them. Having it in your arsenal means you are equipped to make more informed financial decisions. Unfortunately, it is way too easy to make mistakes in the process of preparing it.

If you need an HOA management software for your association or management company, Condo Manager is your best choice. Call us today at 800-626-1267 or reach out to us online for a free demo.



The Importance Of An Updated And Accurate HOA Balance Sheet

The HOA balance sheet is an important financial tool in any given homeowners or condo association. Making sure you prepare this report accurately is essential to the financial health of your community.


What Is an HOA Balance Sheet?

The balance sheet is one of several financial statements or reports that organizations use to assess their fiscal condition. Homeowners associations are no exception. The HOA balance sheet shows you the assets and liabilities of the association. It is a quick way of getting a picture of your association’s overall financial strength.

The homeowners association balance sheet consists of three parts and follows a simple formula:

Assets = Liabilities + Equity

An association’s assets are anything that has monetary value. This includes cash accounts, reserve funds, accounts receivable, prepaid insurance, long-term investments, and land. An association’s liabilities are the amounts your association owes. This includes accounts payable, utilities, prepaid assessments, rental fees, and long-term loans. Finally, an association’s equity is what is left after subtracting your liabilities from your assets.

When your HOA has positive equity, it means your association is in good financial condition and has enough money to cover its debts. On the other hand, negative equity signals that your association isn’t doing so well. It means more money is going out of the association than coming in. Thus, you need to start reevaluating your association’s finances.


The Importance of HOA Balance Sheet Accuracy

Homeowners associations must regularly prepare financial statements, including HOA balance sheets, to assess its finances. Most of the time, HOA boards lack the qualifications or expertise to do this themselves and, thus, require the help of a Certified Public Accountant (CPA) or management company.

Additionally, in some states, it is mandatory for HOAs to prepare such statements and distribute them to their membership. For instance, in California, Civil Code Section 5305 requires that a copy of the financial statement review be distributed to members within 120 days following the end of the fiscal year.

But, the importance of an accurate HOA balance sheet goes beyond the requirements of the state or your governing documents. As previously stated, the balance sheet provides you with a snapshot of your association’s financial health. It allows you to see whether or not the HOA is in stable condition, at least in the sense of its finances. With the balance sheet, you can determine if your association has enough money to pay for its obligations and debts.

Accuracy is key when preparing financial statements. With erroneous numbers, you can’t aptly find out what your financial standing is. This could lead to the misconception that your association has more money or fewer debts than it actually has. Operating under an incorrect notion gives you a false sense of security. You might spend more money than you have, resulting in even greater debts.

While you can generally update your balance sheet any time you like, it is good practice to do so at the end of every month. This allows you to keep a tight leash on your finances and make adjustments when necessary.


The Role of HOA Management Software

Although you can rely on manual accounting processes, the advent of management software has made it infinitely more efficient and convenient to stay on top of your HOA’s finances. Here are just some of the ways HOA software can help with balance sheet preparation.


Quick and Convenient

Far too many associations waste time fumbling with financial reports when they could be focusing on maintaining the community and keeping residents satisfied. HOA software largely automates accounting processes, allowing your board to save time. Relying on software is also more convenient since you don’t have to worry about confusing financial terms and calculations. With software, you can generate an HOA balance sheet with the simple click of a button whenever you like.


Easy Access and Storage

Is your homeowners association running out of room to physically file reports? Space is a big issue for many associations, especially with the countless documents and records you need to maintain. With architectural review forms, violation records, and insurance policies to keep, the addition of financial reports can make it extra hard to find room. Plus, there is also the issue of rifling through years and years’ worth of documents when you’re in search of a particular one.

Not with HOA software, though. Because HOA software uses servers to store data (whether in the cloud or on-site), space is a non-issue. If you ever run out of digital space, you can always purchase an upgrade. That’s not as easy to do with physical space.

Management software also lets you search for records in a more efficient manner. Apart from that, you can also make copies of your data and store backups somewhere else. This not only takes care of access but also security and loss issues.


Accuracy and Security

The numbers on a balance sheet don’t just magically appear out of thin air. You record financial transactions in your general ledger, which you then use as a reference when preparing your HOA balance sheet. During this process, though, you can commit mistakes and end up with an inaccurate report — and you already know how dangerous it can be to work under a financial misconception.

HOA software automatically pulls its numbers from financial records to generate reports, thus, minimizing human errors. Of course, since you will still need to manually input invoices and other financial transactions at times, there is still some room for mistakes. Overall, though, HOA software can prepare more accurate balance sheets. In addition to better accuracy, HOA software also helps prevent fraud since it is harder to fake the numbers.


A Helping Hand

The HOA balance sheet is integral for homeowners associations to evaluate their financial state. Thus, it is essential to have an accurate balance sheet that you regularly update. Unfortunately, this is not always achievable when left in the hands of inexperienced board members. An HOA management software, though, can assist with this and with many others.

If your homeowners or condo association needs reliable and comprehensive software, choose Condo Manager. Give us a call today at 800-626-1267 or contact us online for a free demo.



What Payment Methods Should Be Made Available For Homeowners?

“How do I pay my HOA fees?” Homeowners often ask this question, but many HOAs only offer the same traditional method. But, there are a few different payment methods for HOA dues that associations can start adopting.


Convenient Online Payment Methods for HOA Dues

Many homeowners find difficulty with the current payment methods their HOA accepts. Typically, HOAs use traditional payment methods such as sending checks via mail or physically collecting homeowners association payments door-to-door. While such methods have proven effective and reliable, there are more convenient ways for dues payment. One such way is allowing homeowners to pay dues online.

Many payment providers offer online HOA dues collection services. These providers achieve this by connecting to acquiring banks, payment networks, and credit cards. As a result, homeowners can pay their dues conveniently right from their smart devices. But, what payment methods for HOA dues are available?


1. Credit Card

homeowners association payments“Can I pay HOA fees with a credit card?” You have probably been asked this question by a new homeowner in your community.

If you already allow credit card payments, that’s great. But, if you have yet to offer it, now is the time to consider doing so.

Basically, using this payment method, any homeowner with a credit card can pay their dues online. Your HOA can start accepting online credit card payments with the help of credit card processing providers.

Some homeowners pay HOA with a credit card via the phone. This involves receiving calls from homeowners, asking for their credit card information, and manually entering the numbers in your system. Although there are HOAs that do this, it brings up the issue of security. Online credit card payments, on the other hand, use data encryption to protect homeowners’ financial information.


2. Debit Card

Credit cards are great, but they create debt for homeowners in the future. Sometimes, homeowners only want to spend the money they already have. This is where debit cards come into play.

Your HOA can start accepting debit cards as a payment method for HOA dues. Debit cards are essentially cash payments without the use of actual, physical money. Similar to credit card payments, your HOA can work with a debit card processing provider to make this happen.


3. Automated Clearing House (ACH)

ACH involves the use of electronic credits or debit transfers so that homeowners can make HOA payments online straight from their bank accounts. Many HOAs favor this method over the first two because it allows for automatic recurring payments. This works great for subscription-type transactions like monthly HOA dues.

Additionally, ACH eliminates the trouble for homeowners having to remember to make payments online themselves. Since it is automatic, all they need to do is set it up and let it work on its own. This can significantly reduce your HOA’s delinquency rate, too.

The only problem you might encounter with ACH is hesitance from homeowners. People are scared to give their bank information to the HOA, but it actually does not work that way. The bank gets their bank account information. Make sure to explain this clearly to homeowners so that you don’t encounter pushback.


4. eCheck

When it comes to electronic payments for HOA dues, you can also use eChecks. This will also require homeowners to have a bank account, though, and provide you with the details. You also need the check number to make it work.


The Use of HOA Websites and Resident Portals

hoa online payments

If your association decides to accept HOA online payments, you will need a platform from which to accept credit and debit card payments. Again, some HOAs allow such payments by manually entering the card details over the phone, but that is a security risk. The best way to collect HOA dues online is to set up an HOA website.

You can choose to hire someone to create the website for your homeowners association. But, there are also many online providers that offer websites as part of their services. These services usually come with a fee, either recurring or one-time, so it is a good idea to evaluate and adjust your budget accordingly.

Alternatively, many HOA management companies have online portals that residents can log in to. In addition to making online payments, homeowners can use such portals to file requests, submit complaints, and even download important HOA documents. If you already have an HOA management company, ask them if they have a resident portal. But, if you don’t have one yet, consider looking for one that offers it.


Bank Charges and Processing Fees

When it comes to how to pay HOA fees online, credit cards and debit cards certainly offer convenience. But, they also usually come with bank charges for each transaction. This is where ACH and eChecks have the advantage. Whereas credit and debit card payments charge a fee to the holder, ACH and eCheck payments are typically free.

Homeowners associations should also turn to their governing documents for guidance. If your governing documents allow you to charge a fee for accepting dues payments online, then you can certainly do so. But, make sure you inform all homeowners of this fee and how much it will cost. Moreover, your HOA should not use this as an opportunity to earn a profit. You should only use the fee to cover the cost of processing.

In addition to your usual communication channels, it is also worth disclosing the fee on the payment page itself. Let homeowners know that they need to pay the fee if they want to use online payment methods for HOA dues. That way, by proceeding with the transaction, they are agreeing to pay the fee.


How an HOA Management Software Can Help

Plenty of management software providers also offer online HOA payment processing as part of their product’s features. This includes payments made via credit card, debit card, and ACH. With ACH, all you need to do is link homeowners’ bank information to their accounts. From there, homeowners association dues collection can be done with just a few simple clicks, automatically generating a NACHA upload file that your bank can use to process the payments.

Additionally, with HOA software, you can streamline accounting processes and monitor your bank accounts all from one place. Tasks such as bank reconciliation, financial statement preparation, check printing, and general accounting are made easy.


Everyone Can Benefit from Online Payment Methods

For homeowners, dues payment can be a headache, especially if they need to physically mail in their checks or deposit their payments. Luckily, your HOA can make the entire process more convenient with the use of online payment methods for HOA dues. It works out great for your association, too, because collecting dues becomes less complicated. You might even reduce your delinquencies.

While HOA management companies can help with dues collection, not all associations can afford their fees. Investing in HOA management software, though, is a good move and will pay for itself in the long run. In addition to sophisticated management features, Condo Manager makes online payment processing a breeze. Call us today at 800-626-1267 or contact us online for more information. You can also request a free demo!



Manual Invoicing vs Automatic Invoicing: What’s Best For HOAs?

Automation makes HOA management easier. Streamlined processes, such as automatic invoicing, increases efficiency and reduces manual labor. However, there are still a lot of HOAs that use manual invoicing processes. If you want to determine which is best for your HOA, here’s what you need to know about manual invoicing vs automatic invoicing.


What Are the Benefits of Automatic Invoicing?

Automation can make community association management significantly easier for board members. Financial management, in particular, can be very tedious work. By streamlining important processes — such as going from manual invoicing to automatic invoicing — the association can run more efficiently. Here are the benefits of automatic invoice processing.


1. Lower Operating Expenses

Even though HOA automation software will require an upfront investment, it will save your association money in the long run. Automated invoices will reduce the need for paper, envelopes, and ink. Since everything is already digital, you won’t have to spend as much on office supplies. HOAs can also reduce labor costs because employees won’t have to spend hours and hours focusing on manual invoicing.


2. Faster Processing Times

faster processing and reduce error | automated invoiceManually creating and processing invoices is very time-consuming, especially if you have a large association. Automatic billing and invoicing will reduce overall processing times.

It will only take a few clicks to prepare relevant information, create invoices, and send them digitally. HOA software may also offer integration so the HOA and homeowners can conveniently settle their accounts online.


3. Reduce Invoice Errors

Humans are prone to make mistakes occasionally. However, invoice errors can have a devastating effect on your HOA accounting. You can avoid these consequences by shifting to automatic invoicing. Automation increases accuracy and minimizes errors. Also, since automatic invoicing is much faster, employees can devote more time to double-checking for mistakes.


4. Help Save the Environment

Automatic invoicing can be very helpful in advancing the green initiatives of your HOA. Going paperless means reducing your carbon footprint, which is essential in saving the environment. A green HOA may also attract more potential homebuyers, especially since many of the current and future homebuyers are eco-conscious millennials.


5. Improve Productivity

Since manually processing invoices can take hours, days, or even weeks, board members or employees may not have enough time to focus on other essential HOA tasks. Thus, switching to automatic invoicing can increase the HOA’s productivity. You’ll have more time to focus on more urgent HOA matters or projects that improve the quality of life of homeowners.


6. Fewer Service Interruptions

With manual invoicing, there’s a possibility that invoices may get misplaced, lost, or ignored. These issues could hinder the association from settling accounts on time. As a result, services may be halted or interrupted — which will then affect the quality of life of homeowners. If invoices are sent digitally, you can reduce or avoid overdue payments and service interruptions.


7. Better Financial Reporting

hoa board discussing financial report | automatic billingAutomatic invoicing is just one of the key features of HOA software. By automating your accounting processes, board members will find it easier to keep track of HOA accounts and finances. With all the financial information easy to access, it will be less tedious to create annual budgets and other financial reports.


What Are Possible Reasons for Using Manual Invoicing?

Despite the benefits of automatic invoicing, not all HOAs have made the switch. Some HOAs may be happy with their manual invoicing processes.

In its own way, manual invoicing can still provide HOAs with certain benefits. Here are possible reasons why associations might want to stick to manual invoicing.

  • Lack of Use: Not all HOAs need automatic invoicing. Smaller HOAs have fewer members and utilities so the invoicing process is not as tedious compared to larger HOAs. Thus, there’s no pressing need to spend on HOA software just yet.
  • Keep Records Safe: It can be scary to only have digital copies of HOA records. If the system crashes, the HOA could potentially lose all its records. Some HOAs may prefer manual invoicing to keep important documents safe.
  • Ensure Privacy of Homeowners: With digital and online processes, there are also privacy concerns. If your system gets hacked, sensitive information about the HOA or its homeowners could be leaked or exposed.
  • No Time to Learn New System: Some HOAs may stick with manual invoicing simply because they have no time to learn about the automatic invoicing process. HOA software is a major investment so if the association cannot use it properly, you won’t be able to get your money’s worth.

These are just some of the reasons why some HOAs have not made the switch to automatic invoicing. Keep in mind, though, that with all the advancements in technology, HOA software can be very useful and reliable. It’s just as important to find the best HOA software for your needs. Once you do, you won’t feel any hesitations as the transition will be seamless.


Is Automatic Invoicing Better for Your HOA?

Investing in HOA software can mean that you are also investing in the future of your association. By automating invoicing and other essential tasks, the HOA can save a lot of money in the long run.

The money that you would have spent on office supplies, labor, and other expenses can instead be used for community projects. Automated processes can also mean better financial stability for the HOA. Even if you are still a small HOA, investing in automation can make it easier to scale or expand in the future.