Being part of an HOA board is a job that comes with a lot of difficult responsibilities. When it comes to the financial side on an HOA, there are so many moving parts that it can get overwhelming. Avoiding these five financial mistakes can help protect your HOA from getting into a difficult position financially.
1. Not Budgeting Thoroughly
The budget is the single most important tool for the health and success of your community’s finances. A budget can single-handedly bring finances under your control. Many associations that become lazy with their budgeting can quickly find themselves in financial ruin. To avoid this mistake, be sure to account for every expense that you can think of. Be especially sure to set aside funds for unanticipated expenses. And stick to the common sense rule: if you cannot afford it, do not buy it.
2. Not Planning Ahead
According to the Foundation for Community Association, less than 50% of HOA communities are adequately covered by insurance. This is one of the biggest financial mistakes you can make as a board. Planning ahead is crucial to keeping your HOA above water and out of financial disaster. As the leaders in your community it is your responsibility to acknowledge that the unexpected will happen and that when it does you need to be prepared. Plan ahead and research the type of insurance that is right for you.
3. Not Shopping Locally
One of the unexpected mistakes that HOA communities make is not shopping locally. By not shopping locally, you may be wasting valuable resources and spending unnecessary money on travel expenses even if the costs are hidden in the bill. By shopping locally, you will also develop close relationships that will result in higher quality work on the part of your vendors and discounts given to loyal customers. Avoid the temptation of looking further than your own neighborhood for good business relationships.
4. Not Being Realistic
Optimism is an excellent quality when it comes to many aspects of your HOA community. However, when it comes to your finances, pessimism will serve you far better. One of the top mistakes that HOA boards make when it comes to their finances is not being realistic about how much things are going to cost, or how long purchases are going to last. It is far better to budget too much than to try and scramble for extra funds.
5. Cutting Financial Corners
Cutting financial corners in property upkeep and maintenance can seem like a good idea at the time. After all, you are saving money by using that cheaper material, or hiring that cheaper company! However, this road can end in disaster. When it comes to crucial things like roof repair, a cheap job can result in property damage and more repairs later. Instead, invest in high-quality maintenance that will last for years and resist wear and tear.
Avoiding these five mistakes is important to the health of your HOA. Remember that an HOA management company can always assist with the financial side of your community if you are having difficulties. This will keep your community thriving for years to come.