5 Essential Tips for Effective HOA and COA Financial Planning

Financial management of Homeowners Associations (HOAs) and Condominium Owners Associations (COAs) is key to a successful community. These groups act like businesses that manage shared property, keep property values up, and ensure a good living environment for everyone. 

Approximately 755 million Americans reside in communities governed by HOAs, comprising over 30% of homes in the US. The Foundation for Community Association Research believes this number will keep increasing, with over 3,000 new HOAs expected to start in 2024. Financial planning for HOAs and COAs is more than just collecting fees. 

It involves careful planning, clear budgets, and saving money to protect homeowners’ investments. Poor planning can lead to maintenance delays, surprise fees, and lower property appeal. To handle these challenges and ensure long-term success, association boards should follow proven financial practices. 

This guide provides five essential tips to help HOAs and COAs maintain sound finances, transparency, and ongoing property value growth. 

KEY TAKEAWAYS

• Go for a transparent budgeting method, and conduct regular evaluations.
• Taking help from professionals can improve financial accountability.
• Follow the policies, and schedule regular financial audits.

1. Implement Transparent Budgeting Processes

Transparency is essential for building trust within HOAs and COAs. Beginning three to four months before the fiscal year to allow thorough analysis and homeowner input, annual budgets should be developed collaboratively. Budgets must be clearly categorized, covering insurance, operations, and reserve contributions, and presented in formats that are easy for the community to adhere to.

Transparency also serves as a key safeguard against fraud.  As an example, the previous president of a Florida condominium board was taken into custody for reportedly misappropriating approximately $1.5 million. He reportedly assumed all top positions within the association to carry out the theft.

Documenting all budget assumptions, such as projected inflation and maintenance costs, helps justify increases. Do not forget to add the monthly financial reports, which will later help in comparing the actual expenses to the provided budget for ongoing accountability. They enable the board to take timely corrective action, mitigating the risk of both mismanagement and potential theft.

2. Conduct Regular Reserve Fund Studies

Reserve fund studies are critical for long-term financial health.  These expert evaluations analyze your community’s shared assets, assess their lifespan, and forecast replacement expenses. A comprehensive reserve study should be conducted every three to five years, with yearly updates to account for inflation and changing conditions.

The study helps identify appropriate reserve contribution levels, preventing both underfunding and overcharging residents.  Roofs, parking lots, elevators, pool equipment, and building exteriors are some areas to examine. By planning for capital expenses, your association avoids emergency exemption assessments that can strain homeowner budgets and create community discord.

Many states require reserve studies for COAs, and even when not specified, they represent best practices. A robust reserve account reflects financial prudence to prospective buyers, upholds property values, and assures current residents. Consider working with a credentialed reserve specialist who pays attention to your construction methods, the region’s climate, and replacement costs.

3. Improve Financial Accuracy Through Professional Accounting Support

Modern community associations can benefit from a specialized HOA & COA accounting service to streamline financial operations and maintain compliance. To manage the complex financial tasks with efficiency and accuracy, these tech-oriented sites go beyond confusing DIY apps or costly CPAs. 

Full-service systems, as noted by Ledgerly, oversee all facets of association finances, such as automated assessment collection, monthly financial reports, and audit readiness.  This comprehensive support allows board members to focus on governance and community priorities rather than day-to-day bookkeeping.

Outsourcing to these specialized providers also grants access to enterprise-level tools and expertise in accounting standards and tax regulations specific to HOAs and COAs. While it ensures audit-ready reporting, reduces manual errors, it also offers real-time financial visibility and helps maintain fiscal stability. 

4. Establish Strong Collection Policies

Effective cash flow management relies on timely assessment collection, making strong collection policies essential for HOAs and COAs. About late fees, payment plan options, and escalation procedures for delinquent accounts, the guidelines should be clear, balancing firmness with fairness, and outline payment due dates. Communicate these expectations clearly from the moment a new resident joins the community.

Make payments convenient by offering multiple options such as online portals, automatic bank drafts, mailed checks, and in-person payments. Before assessments, send due reminders along with follow-ups promptly when payments are late. 

A reliable escalation process for severely delinquent accounts, involving demand letters, privilege suspensions, liens, or legal measures, is crucial for safeguarding the association’s financial stability. Legal action should be a last resort. Consulting an attorney familiar with community association law will help guarantee compliance with state regulations and fair debt collection practices.

The U.S. Census Bureau reports that HOA and condo fees differ significantly across the country. In 2024, roughly 5.6 million homes (26%) paid under $50 per month, while about 3 million homes paid over $500. With a national median of $135, these variations underscore the need for clear and consistent collection policies to ensure financial stability across all communities.

5. Schedule Regular Financial Audits and Reviews

Independent financial reviews promote accountability and identify potential problems before they become serious. You may need a full audit, a review, or a compilation, depending on your association’s size and state requirements. Even smaller associations benefit from scheduled financial reviews by qualified professionals.

Audits examine internal controls, confirm the accuracy of financial statements, verify asset ownership, and assess compliance with governing documents and regulations. They protect board members from accusations of mismanagement and assure homeowners that their funds are being handled properly.

In the intervals between formal audits, establish robust internal controls by mandating dual signatures for significant checks and distributing financial responsibilities among various individuals. Conduct monthly bank reconciliations and review vendor invoices shortly before payment to further safeguard association finances. 

The board treasurer should present financial reports at every board meeting, addressing concerns, highlighting significant variances, and recommending corrective actions when necessary.

Conclusion

Strong financial planning is integral to the stability, transparency, and long-term success of HOAs and COAs. Implementing transparent budgeting, reliable collections, expert accounting assistance, and frequent financial assessments enables boards to safeguard homeowner investments. Proactive financial management prevents risk, builds trust, and strengthens community value.