Managing your association’s budget is a daunting task, especially when it comes time to prepare statements detailing your receivables and expenses. How often you do this—and what details you’ll need to include—will depend on several factors, including state and local requirements, the size of your organization, and your community bylaws.
What Should Be Included?
While the parts may vary, there are several basic components to properly prepared financial statements:
- Balance sheet, which should include all account balances
- Income statement
- All Receivables (this should include any past due fees such as delinquencies, collections, and vendor credits)
- Bank statements
- Ledger (including all account activity within the time period)
- Reserve fund balances
How Often Should I Prepare Statements?
There is no across-the-board rule on exactly how frequently you should prepare statements. You should research state and local requirements, and consider the size of your community and the value of the assets within. With smaller associations, it’s easier to prepare statements more often, even as consistently as once a month. When dealing with larger HOAs, especially those with many high value common areas and assets, financial statements require a lot more detail and time. For this reason, it’s not feasible to prepare them as often.
The important thing to remember is, once you’ve settled on the appropriate frequency for your financial statements, you must stick to it. Keeping a regular consistency helps with avoiding errors in your reporting, and can even help you plan ahead for unexpected expenses. It also provides a level of transparency and promotes trust within your community.
Why Are Financial Statements Necessary?
This may seem like an obvious question—it’s clear that preparing financial statements is important for keeping track of the money coming into and going out of your association. But why is it so imperative to keep detailed track of this information?
As we mentioned above, one of the main reasons is to comply with state and local requirements for reporting financial information. Your property owners may expect regular reports as well. In addition, consistent reporting shows transparency to your association members. When you provide your residents with dependable reporting and accurate information, they will develop trust in your leadership.
Another benefit to preparing regular financial statements is better planning and budgeting. If you keep consistent records of expenses, you’ll be able to anticipate costs for repairs and maintenance more accurately. You’ll also be able to better predict excess funds, allowing you to build your reserves.
Who Gets the Statements?
Once you’ve prepared all the parts of your financial reports, who you’ll send them to will vary based on state requirements and your HOA bylaws. There are, however, three standard recipients that will apply in most cases:
- Your Board of Directors. This report should be delivered in its entirety and without edits or omissions. The board needs to be able to make informed decisions about future expenses and maintenance costs, so they will need accurate information.
- The State Department. If your association is a non-profit organization, you will be required to file reports with the state in order to maintain your good standing.
- Your Association Members. In order to foster a community of openness and trust, you should provide your financial statements to your association members. However, you should amend these public records for discretion. While you want to be honest about how much the association collects or expects in delinquent receivables, you should protect relevant sensitive information such as names of past due members.
Who Should Prepare Your Financial Statements?
Finally, you need to decide who will prepare your statements. Smaller associations typically have a board member appointed as treasurer or financial officer who handles statements and reports. In these situations, it’s advisable to consult a professional accountant. These individuals are experienced in preparing financial reports accurately and in compliance with association and state requirements. Larger HOAs typically defer to a management company to handle their statements due to their vastly more complex budgets. If you use an internal member to prepare your statements, be sure to maintain backups of all data in case they leave the association.
Whatever the size of your community, hiring an HOA management company to help with your financial statements can save you a lot of time and effort.
Looking for help with financial statements, or unsure how to find your state or association requirements? Contact us today, we’d love to help!