HOAs are strongly encouraged to use some form of accounting software for the sake of their sanity and financial stability. Software eliminates tons of paper records, automates repetitive administrative tasks, and helps reduce human errors and costly mistakes. But how sophisticated should an HOA’s accounting system be? Is a full accounting system necessary? Read on to find out what might work best for your community.
Accounting software for organizations and associations
Accounting systems are how companies, big and small, keep track of financial records. The system, be it paper, digital, or some combination of the two, documents transactions, makes sense of what has come in and what has gone out, and helps the organization or association clearly understand if they have broken even, spent more than they have made, or earned revenue within a specific timeframe.
HOA board members have a fiduciary duty to make informed decisions regarding HOA matters and act in the best interest of the community. That means they need a keen understanding of where they stand financially in order to make informed decisions about spending and budgets. Furthermore, the money they are managing comes from all HOA members, so there is additional pressure on board members to budget wisely.
Much like any other business, HOAs need to track and maintain records for tax purposes, audits, and shareholders.
What an accounting system manages
Expenses – The amount of cash that the HOA uses to purchase goods or services are considered its expenses. Expenses need to be categorized using a system that future HOA managers or board members could replicate.
Invoices – HOAs will create invoices for things like amenity fees and monthly dues. This documents how much money is owed to the association. Invoices should look the same every time, and have the HOA’s logo, address, and other essential details on the document.
Revenue – This is how much money has been paid to the HOA. In addition to regular fees, the association may generate revenue from interest, fines, and reimbursements.
Traditional accounting systems
As mentioned earlier, accounting systems can be manual or digital. Manual systems are generally cheaper, but they require more attention to detail, more time, and can be more difficult to maintain. You can use a pen and paper or an Excel spreadsheet to organize your financial data. While you can automate certain parts of the process with formulas and spreadsheets, you still need to enter every transaction manually and ensure everything balances out in the end.
Several small to mid-sized businesses have gravitated towards online or cloud-based accounting systems because they speed up administrative work and improve workflows for teams in charge of accounting. For example, instead of having to manually create a journal entry for every transaction that occurs, accounting software may integrate with your business bank account so that whenever you make a payment, an entry is created automatically. QuickBooks is a very popular option because it is easy to learn, and caters to small business needs.
Large companies use enterprise accounting software. SAP (System Analysis Program Development) is one example. SAP is an industry leader in enterprise resource planning software, and offers complete financial management for the enterprise, from basic accounting, to governance, risk and compliance. Traditional business models may decentralize data management, but SAP brings it all together so that different departments can easily access real-time insights across the company.
HOAs can use manual or cloud-based accounting systems, but many of the popular programs were not specifically designed for community associations.
Shortcomings of traditional accounting systems
In addition to lacking some HOA-specific functionalities, accounting software can be very expensive for associations on a budget. It likely has far more tools than you actually need to manage your HOA.
Some programs are easy to use, but some present a steep learning curve for anyone that has not used accounting software before.
The absence of a self-service portal for owners is another major shortcoming. Owners want to see their balances, but most traditional platforms don’t offer this feature.
Another problem arises with transaction histories and changes of ownership. People move in and out all of the time, but unit ledger reports don’t easily show that change in ownership. This is a huge problem because estoppels and other documents are required to complete a sale. Tax records specific to condominiums and HOAs can also be difficult to produce using traditional accounting software.
Full HOA accounting software
There are software programs designed specifically for HOA accounting. This software caters to the specific needs and desires of community associations.
Boards and managers can get very specific with documentation and reporting, and it’s much easier to record changes of ownership.
Portfolio managers can also switch from one community to another very easily.
HOA accounting software gives your team the flexibility to keep the processes you’re already comfortable with. There is more room for flexibility. It also updates unit ledgers automatically. This helps increase transparency for residents, and reduces the workload for management.
Shortcomings of full HOA accounting software
Even though HOA software was designed with association managers in mind, not all platforms are intuitive. Communities have found that while the functionalities are helpful, they struggle to get the most out of the accounting tools.
The other major complaint that most users experience is poor customer service. While the accounting software is comprehensive, communities can’t get the help they need so they can harness the power of the software. Moreover, since it’s hard to speak to a representative, it takes longer for the company’s developers to fix bugs or glitches.
Comprehensive HOA accounting software is great if you know how to use it. But the reality is, most communities only need strong accounts payable and accounts receivable systems to effectively manage HOA finances.
Most HOAs only need accounts payable and accounts receivable
Accounts payable (AP) and accounts receivable (AR) track money owned by the association , and money owed to the association. That’s not to say that these are the only financial responsibilities HOAs must handle. Rather, AP and AR are the primary functions that require software.
Accounts payable is essentially a form of credit extended by a vendor or supplier, with a service being provided first and payment collected after the work is complete. AP costs appear as liabilities on the association’s balance sheet .
If communities are using accrual accounting, which is the only method that complies with the Generally Accepted Accounting Principles (GAAP), then AP expenses are recorded as soon as they are incurred.
With an AP accounting system like Condo Control, communities can share, process and approve invoices online. Payments are made securely through the system which means board members and managers don’t have to sign stacks of cheques or worry about losing them in the mail.
In addition to giving HOAs the ability to manage and approve invoices online, this time-saving system allows teams to:
-Vet vendors, collect credentials and contact information
-Solicit quotes, hire contractors and create jobs
-Create POs and customize approval rules
Make batch payments and transfer payments to vendors electronically instead of writing and mailing checks
The streamlined AP workflow makes it easier to pay vendors on time, and teams can complete the AP approval process in hours instead of days.
The average monthly HOA membership fee for a single-family home is $250. Let’s say you have 150 homes in your community. That means you are collecting a total of $450,000 and repeating the collection process 1,800 in one year! And that’s just for regular fees. Anything that can automate the AR process is generally welcomed by property managers and board members.
AR is any money owed to the HOA. Usually, this money comes from residents paying assessments, dues or fees. Vendor credits and late fees are also logged under AR. Money owed to the association appears as an asset on the association’s balance sheet.
With AR software, it is possible to schedule automatic notices if residents fail to make a payment on time. The notice is sent via email so that overdue payments can be addressed as quickly as possible. It also cuts down on manual work for the people in charge of collecting late payments.
Condo Control’s core accounts receivable feature gives management the ability to create invoices or credit memos, send them via email, customize various types of charges, and log payments, all from one online platform.
If communities already have an online payment processing system, they can link it to the AR feature and allow residents to submit payments online. However, management can also use the platform to record cash and cheque payments.
This system is incredibly easy to use, and our team is always available to help if users ever run into issues with the platform.
Benefits of using software to manage AP and AR
The software pays for itself
Reliable AP and AR software are not free, however, the price of the programs will pay for themselves in the long run. Furthermore, these types of software systems are much more affordable than full accounting systems.
HOAs contribute a collective $306 billion to the U.S. economy each year through volunteer time, taxes, improvements, housing services, etc. Anyone who has volunteered on the board or managed a community knows how valuable time is, as well as how much mistakes can cost an association.
Accounting software helps to minimize human errors, which means teams spend less time doing the same work twice. It also reduces frustrations with record-keeping, and can even make individuals feel more comfortable with handling finances.
Teams save valuable time
AP and AR software offer tools that automate tasks like cutting checks and manually updating unit ledgers. These automations take an incredible amount of strain off of managers who already have hectic workdays and don’t have the time to enter data twice or chase after people for invoice approvals.
Condo Control’s AP and AR features also save communities time because both functionalities are available on the same platform. No switching between programs or paying for multiple tools.
Accuracy is improved
There’s always the possibility of human error when you manually enter financial information into a spreadsheet. Even if there is just one incorrect number, it can create problems between you and a vendor or a resident.
Because accounting software creates secure and easily accessible records, associations can identify errors quickly. It’s also easier to compare a purchase order to an invoice, or verify when a resident submitted an online payment.
AP and AR software generate reports
An estimated 7,500 HOAs are considered large-scale, meaning they have at least 1,000 lots or homes and a $2 million annual budget. These communities make thousands of transactions every year.
Reports can give these communities, or any sized HOA for that matter, a high-level view of financial health within a certain month, quarter, or year. Similarly, they can look at specific details to help them make smarter decisions for the next year.
Practical AP and AR systems are generally more customizable. They are far less complicated, but will accommodate more choices/options since each tool only focuses on one aspect of HOA accounting. When managers ask if the program can do something specific, and find out that it can, they get really excited. Not only does a flexible system make their job easier, but they end up being more productive because the software caters to their preferences, not the other way around.
The remote working trend has not skipped the HOA industry. One study found that working remotely was a more productive setup for managers, and they were able to make better use of their time.
Similarly, management company employees said at least half of their organization now works remotely. People are also more likely to join HOA meetings when they can do so from their homes.
It’s looking as though flexible work arrangements are here to stay, which means cloud-based software is now essential to HOA communities. Teams can access the AP and AR systems from any computer, and maintain productivity even if they are not working together in the same room. Invoices and documents can be shared through the platform meaning no one has to come into the office to find a physical copy of an item.
Why now is the right time
HOA communities everywhere are looking for better software solutions – but they aren’t necessarily looking for the most expensive or advanced platform. A 2022 State of the Industry published by CINC Systems found that associations, and boards in particular, want technology that will:
-help prevent burnout
-protect association members
Board members expressed some frustration regarding the current technology that their management companies are using. The solutions are outdated, and just don’t work as well as they should. They don’t solve the problems that are plaguing HOA communities.
The good news is communities don’t need to wait for things to get worse or continue settling for mediocre results. Stop wasting time and money by switching to an accounting platform that you’ll actually enjoy using.
Condo Control’s AP and AR features are simple, modern and very effective. Property managers and boards will notice improvements to their accounting workflows right away, and HOAs will gain better control of the money moving in and out of the association.
What better time than now to tackle your worst HOA accounting headaches?!
Accounting software can make managing finances easier, and create more consistent and transparent processes for boards and HOA managers.
While having accounting software is better than trying to maintain a spreadsheet, most HOAs do not need a full accounting system. Not only are these systems costly, but communities don’t end up using the features that they are paying for.
Accounts payable and accounts receivable software are typically enough for HOA communities. Not only does the simplicity of the features benefit management, but owners can access their account information to ensure they are in good financial standing. These solutions make life easier for everyone, and that’s an invaluable quality.
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Written by Condo Control Central Blog | Shared from Condo Control Central Blog