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Understanding Financials

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Basic Financials Education

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Understanding Financials

  1. 1. Adam Haneyahaney@haneyinc.com888 786-6000 x317<br />An Introduction to HOA Finance<br />
  2. 2. Lost? You are not alone.<br />
  3. 3. The Roles in Accounting<br />The Accountant’s Goals<br />Transparency<br />Informed Consent<br />Ascertainable Standards of Care<br />The Board’s Duties<br />Care, Custody & Control of HOA Financial Assets<br />Maintain, Protect and Enhance community values<br />
  4. 4. What is accounting?<br />Accounting is the art of communicating financial information about an association to homeowners, community managers, lenders and prospective buyers.<br />
  5. 5. So how do you tell the difference? <br />Vs.<br />
  6. 6. The Reports<br />Balance Sheet<br />Income Statement<br />Reserve Study<br />Budget<br />And many more<br />
  7. 7. Balance Sheet<br />A snapshot of one point in time<br />Asset – owned by the HOA<br />Liability – 3rd party claims on assets<br />Net Assets – Owners’ claims on assets<br />
  8. 8. Balance Sheet<br />A snapshot of one point in time<br />=<br />
  9. 9. Balance Sheet<br />& Income Statement<br />Income Statement<br />June 20XX<br />Balance Sheet<br />May 31, 20XX<br />Balance Sheet<br />June 30, 20XX<br />=<br />+<br />
  10. 10. Income Statement<br />Activity for a period of time<br />Revenues – Income as it is earned<br />Expenses – Costs as they are incurred<br />
  11. 11. Balance Sheet vs. Income Statement<br />Balance Sheet<br />A snapshot of one point in time<br />Assets = Liabilities + Net Assets<br />Income Statement<br />Reports activity between two points in time<br />Revenues – Expenses = Excess/Shortage<br />
  12. 12. Budget (Page 4)<br />Short term (1 Year) estimate <br />Includes a projected income statement<br />Should include a reserve provision<br />Most expenses are not discretionary<br />
  13. 13. Budget Variance Report<br />Short term (1 Year) estimate <br />Budget variance reports help identify potential problems and track progress throughout the year<br />
  14. 14. Reserve Funding Methods<br />Prefund<br />Musical Chairs<br />Borrow<br />Reserve Expenditure<br />Operating Expenditures<br />Year<br />
  15. 15. Reserve Study (Page S3)<br />Long term (30 Year) estimate <br />Components are repaired or replaced infrequently<br />The repair or replacement is a significant cost<br />
  16. 16. Reserve Study (Page S5)<br />Long term (30 Year) estimate <br />A tool to prevent avoidable special assessments<br />Have a plan and discuss it with the owners<br />
  17. 17. Budget vs. Reserve Study<br />Budget<br />Short Term (1 Year)<br />An estimate of the next year’s revenues and expenses<br />Ex. Assessment revenue, landscaping expense, utilities<br />Reserve Study<br />Long Term (30 Years)<br />A study of major components that need to be repaired or replaced over the next 30 years<br />Ex. Replace roofs, resurface asphalt streets, replace mailboxes<br />
  18. 18. Informed Consent<br />
  19. 19. So how do you tell the difference? <br />Vs.<br />
  20. 20. So how do you tell the difference? <br />A positive net asset balance<br />A reserve funding plan without cash shortfalls or special assessments<br />Sufficient operating cash to meet current obligations<br />Effective assessment collection practices<br />=<br />
  21. 21. So how do you tell the difference? <br />A negative net asset balance<br />No reserve funding plan<br />Insufficient operating cash to meet current obligations<br />Poorly managed accounts receivable<br />=<br />
  22. 22. What can you do?<br />Review your financial statements regularly<br />Know your reserve funding plan<br />Review bank statements and reconciliations<br />Manage delinquent accounts<br />Ask Questions<br />
  23. 23. Adam Haneyahaney@haneyinc.com888 786-6000 x317<br />An Introduction to HOA Finance<br />

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