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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.