7 HOA accounting best practices for community association managers: How to keep your books in the black

Whether the associations you manage are big or small, smart bookkeeping undoubtedly plays a key role in the health of these communities. The HOA accounting best practices you follow can have an impact far beyond just sticking to a budget. In fact, in a recent survey detailing the challenges that community managers are facing in 2024, respondents said that rising maintenance costs were a major pain point. Without proper accounting measures, those costs could send even the most well-meaning associations into the red.

So, what do you need to do to keep HOA members satisfied while making sure that your association stays financially sound?

We’ve put together seven accounting best practices that all community association managers need to know about. Equipped with this know-how, you’ll be ready to set up your association with a sound financial foundation, set expectations with HOA boards, and be prepared for any surprise expenses that could pop up down the road.

Why Following HOA Accounting Best Practices Matters

HOA accounting best practices are the foundation of any stable community association. After all, having a good handle on your books is how you’ll know where you currently stand financially as an organization and what you can afford to spend on—both day-to-day expenses and longer-term projects.

Without accurate financial records, you could open yourself and your boards up to some big risks. For example, you could run out of money the next time an emergency expense pops up, forcing you to levy a special assessment on your residents. You could also miss important tax deadlines, leaving your association at risk of incurring costly fines and penalties.

While those are only examples of what could happen when your books aren’t as tight as they should be, there are plenty more that could negatively impact your community.

If you’re ready to get your association’s financials in order, here are seven HOA accounting best practices you can implement right away.

#1: Establish HOA Accounting Standards with Your Boards

HOA accounting encompasses much more than simply writing down any income and expenses the association incurs. It involves tracking and recording all financial activity so that the board can receive accurate reporting and know where the association stands. The easiest way to ensure all transactions are properly reported is by setting up accounting standards with each board.

An accounting standard is a set of policies for how accounting transactions must be handled. The most widely used set of accounting principles is known as the Generally Accepted Accounting Principles (GAAP). Whether you and your board choose to follow GAAP principles or use another method, having a defined procedure for how accounting transactions are recorded will help reduce confusion and minimize the possibility of errors.

As a general rule, you should regularly review the following financial statements:

• Balance sheet
• General ledger
• Income and expense statements
• Accounts payable report
• Delinquency report
• Cash disbursements ledger

If you don’t already have this reporting in place, you should take steps to set up that structure now. Fortunately, technology can simplify the reporting process for you, automating the most time consuming tasks. Property management software solutions such as Buildium can generate financial statements for you with just a few clicks. From real estate balance sheets to bank reconciliations and cash flow statements, Buildium records your transactions and allows you to turn them into GAAP-recognized reporting.

#2: Set Up a Healthy Reserve Fund for Your Associations

A reserve fund is an association’s savings account. Its funds are earmarked for non-routine expenses, such as capital projects or emergency repairs. It’s different from an operating fund, which is an account where the money is used to cover the day-to-day expenses needed to keep the association up and running.

If your association doesn’t have a reserve fund just yet, you should prioritize setting one up—before you encounter any surprise expenses. While there is no magic formula that can tell you exactly how much money to keep in a reserve fund, it’s a good idea to make sure you’re regularly funding this account as part of your approach to association banking.

You never know when unexpected expenses will crop up. And without accurate reserve funding, you may be forced to impose special assessments on residents, which can become a sizable financial burden. However, with the right preparation, you can make sure that you have enough money in your till to cover emergency costs and to budget for those longer-term improvements and maintenance projects your board has in mind.

#3: Conduct Regular Audits and Reports

Conducting an audit involves hiring a third party to review the association’s financials. Usually, the third party will be a certified public accountant (CPA) or other financial professional who will check that your records comply with basic accounting principles and verify their accuracy.

Audits are beneficial because they offer an unbiased assessment of the community’s financials and can help to point out any discrepancies. During the audit, the financial professional you’ve hired will take the time to vet each financial transaction on your books, including contacting anyone who has done business with your association. If they find any discrepancies, they will point them out in their final audit report.

Typically, audits take place at least once a year, although each association’s governing documents may have different requirements. If your association hasn’t undergone a financial audit in some time, you should schedule one as soon as you can.

#4: Centralize Your Records to Reduce Human Error

It’s a good idea to take a look at how you’re organizing each association’s financial records. In this case, it’s absolutely essential to have one centralized system for recordkeeping. Staying organized will enable your team to find and share the records they need quickly and minimize the possibility of important documents getting lost in the shuffle.

Software can help here too, making it much easier to organize documents. Purpose-built tech can link all your company financials with real-time bookkeeping. Look for company financials features  that let you enter transactions, such as income and expenses, without hassle and view key documents and data all in one place.

#5: Keep Communication with Boards Clear and Consistent

Communicating with boards is also a key part of any association manager’s job. However, if you have to sift through endless email chains and manually file away sensitive documents, it can be all too simple for some important messages to fall through the cracks. The same is true for your financial statements, meeting minutes, and many other vital documents.

Instead, you’ll want to focus on creating a streamlined system so that all the important players can easily be kept up to date in between meetings. A communication portal allows board members to privately share and access documents at any time, allowing you to effortlessly get everyone up to speed on the most important issues facing your association.

#6: Strategically Use Technology to Automate Accounting Tasks

There’s no denying that staying on top of accounting tasks can be time-consuming and tedious. From recording and categorizing expenses to reconciling accounts receivable, even basic bookkeeping can drain hours out of your day and work week.

With that in mind, look for ways to automate accounting tasks where you can, without compromising on accuracy. Explore and consider investing in tools to automate many of these routine activities.

This can start with generic accounting software—thinkQuickbooks—but you really start to see time savings and ROI with tools that are purpose-built for association and property management. For example, CondoWorks can automate the accounts payable process while Alliance Association Bank seamlessly integrates your banking and accounting platforms. Services like Axela Technologies can even help you handle accounts receivable and collections.

Finding the right combination of technology frees you up to focus on what matters most—providing a better experience to residents and board members while adding value to the community.

#7: Stay Ready for Tax Season Year Round

Waiting for tax time to prepare your finances inevitably ends up creating an untenable level of stress for yourself and your team while also opening yourself up to the possibility of making unnecessary errors and even potentially becoming subject to steep penalties and fines.

Instead, prepare for filing your community association taxes early by recording all transactions, planning your deductions, and reconciling your bank statements often. It’s a good idea to block off a regular time in your calendar to take care of these tasks.

However, it also doesn’t hurt to go the extra mile and take some time to familiarize yourself with federal, state and local tax laws, as well as to take advantage of tax-advantaged accounts. Doing this initial prep up front gives you the time to make adjustments as needed, spot any surprises in your books, and avoid errors that all too often come with a time crunch.

Put HOA Accounting Best Practices into Action

Whether you’re just getting started implementing HOA accounting best practices in your community or you’ve been following them for a while, it never hurts to take some time to think about how you can further streamline your financial processes. Following the tips above will help you keep your associations financially sound.

The best part is that effective HOA accounting doesn’t have to add work to your to-do list. Comprehensive association management software can automate many of your regular accounting tasks, as well as making storing and sharing your financial records much simpler. Many of the features outlined above, such as quick report generation, automated account reconciliation, and communication portals, are seamlessly integrated into Buildum’s platform.

You can even give Buildium a try risk-free with a 14-day free trial to get a better idea of how it benefits the communities you manage.