May 28, 2010

In a new article, we offer 9 Tips for Better HOA Financial Reporting and Management. In this week's tip, you'll discover two of the tips that can help your board better understand and control your condo or homeowners association's financial situation.

1. Know what kind of accounting you're using. If you're not familiar with accounting, you must first know what kind of accounting method—cash or accrual—your association uses. With a cash accounting method, you record income as you receive it and expenses as you pay for them. With an accrual method, you record expenses when you incur them—even if you haven't made the payments yet—and you record income when you've earned it even if you haven't received the money yet.

   "It's a little confusing until people get the hang of it," admits Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va.

2. With cash accounting, take a long view. If you're using a cash accounting method, be sure you can cover big expenses down the road.

   "If you're doing financials on a cash basis, which is just like a checkbook where you track money as it goes out and comes in, you need to have some way of reviewing your upcoming expenses so you're not making decisions based on what's in the bank but on what large expenses are coming down the pike," says Debra A. Warren, principal of Cinnabar Consulting in San Rafael, Calif., which provides training and employee development services to community association management firms and training and strategic planning sessions for association board members.

   "Also be realistic about your budget, and don't bank on collecting income you may not collect," says Warren.

Get a better grasp of your association's finances—or help your fellow board members master them. Learn (or share) all 9 Tips for Better HOA Financial Reporting and Management in our new article.

Best regards,
Matt Humphrey
President