Bookkeeping and accounting are terms often used interchangeably. However, they are distinct in several ways. Is bookkeeping for HOAs a necessary service? How is it different from accounting and which service is best for your community? Let’s find out.
What is Bookkeeping for HOAs?
The bookkeeping process for HOAs involves recording and organizing the community’s financial data. It consists of recovering and tracking the association’s financial transactions like bank reconciliations, payroll, billing, and invoicing.
HOA Bookkeeping vs Accounting
Bookkeeping for HOAs is quite similar to accounting. In fact, the terms are often confused, as bookkeeping also involves preparing financial statements, maintaining an HOA chart of accounts, and balancing subsidiaries.
However, while bookkeeping is mainly concerned with organizing data, accounting is more concerned with presenting and interpreting information. It’s a high-level process that uses the bookkeeper’s data to produce financial models.
For this reason, accounting involves several additional processes, including the following:
- Analyzing operational costs
- Reviewing and interpreting financial statements
- Completing income tax returns
- Preparing to adjust entries
- Helping the HOA understand the result of certain financial decisions
Accounting is more of a process that helps you make decisions about the data your bookkeeper has compiled. It allows associations to understand better the community’s financial standing, profitability, and trajectory. Moreover, it helps them become more aware of cash flow. These analyses can help HOA boards with strategic tax, forecasting, and financial planning.
Bookkeeping for HOAs: What Are the Benefits?
Bookkeeping is a necessary part of financial management. After all, you need information to make financial analyses. Here are some reasons why the practice is still required.
1. Maintaining Accurate Financial Records
Typically, the treasurer serves as the bookkeeper for HOA communities. However, while this setup can be convenient for small communities, the treasurer of a large community may need help to handle the workload.
For this reason, many associations avail of professional HOA bookkeeping services to track the neighborhood’s income and expenses. Professional services have the experience and manpower to handle the immense workload. Moreover, there is less confusion when it comes to generating financial statements.
2. Spotting Financial Errors Early
Whether you need bookkeeping for small HOAs or significant associations, professional bookkeeping services will help you monitor your finances regularly. Doing so can reduce the risk of financial errors if you manage your books less frequently.
Bookkeepers can immediately spot minor issues like double charges, questionable invoices, and suspicious financial activity. Missing these minor issues could result in major financial losses for the community.
3. Easy HOA Audit
Many associations need to prepare HOA-audited financial statements as required by state law or the governing documents. Regular bookkeeping can make the process faster as all the financial records will be easily accessible. No need to scour through all the receipts and invoices dating months back!
4. Monetary Savings
Professional bookkeeping services seem expensive now but will save you money in the long term. Regular bookkeeping prevents you from making financial mistakes due to delayed recording and organization.
In addition, tracking records daily allows you to keep tabs on accounts payable. This prevents you from incurring unnecessary interest and late fees. Plus, a dedicated bookkeeper can also save money for the residents. The bookkeeper can send timely invoices so residents can make monthly payments without delay.
5. Access to Accounting Tools
Professional bookkeepers can access industry tools that make financial management more effortless. Often, they already have the necessary tools, so you don’t have to worry about researching the best software.
6. Financial Transparency
Bookkeeping allows the HOA to maintain financial transparency with the rest of the community. By recording transactions regularly, the HOA can itemize each transaction and showcase how money is spent and collected. Community members can inspect these records to verify, with their own eyes, how the community spends its funds.
7. Legal Compliance
Homeowners associations are subject to several laws that require financial transparency. Proper bookkeeping helps the community maintain accurate records and ensure compliance with state laws and governing documents.
8. Accurate Budget Creation
Information is vital to creating an annual budget. With a detailed record of the association’s financial history, the HOA budget committee can easily forecast the coming year’s expected expenditures and income.
In addition, effective bookkeeping can help the community track the actual income and expenses as they happen. The board can quickly adjust the budget — whether it’s by increasing revenue sources, managing cash flow, or reducing expenses — to ensure the community’s financial stability.
9. Financial Stability
Financial stability starts with maintaining accurate records and financial reporting. Incorrect records can be devastating, as they can mislead the board into thinking the HOA has enough funds when it does not. The board might make unsound financial decisions that could cost the community a lot of money.
10. Tax Preparation
Homeowners associations are subject to taxes like other corporations. Proper bookkeeping ensures that each financial transaction is properly categorized and recorded, helping the HOA avoid filing errors.
Does Every HOA Require a Bookkeeper and Accountant?
Depending on the HOA’s financial needs and size, homeowners associations may need only one person to fulfill the roles of bookkeeper and accountant. However, if the association’s operations are too complex, multiple people may need to fill either role.
For example, some homeowners associations have hundreds of units. These associations typically have more sophisticated collection systems and hire more vendors. It’s not uncommon for them to have hundreds of transactions each day.
Even if the HOA is not particularly large, it’s nearly impossible for a single person to handle complex financial needs such as managing significant investments and multiple income streams.
Starting with a bookkeeping service may be wise to ensure basic financial tasks are managed appropriately. As the association grows — or when it has enough funds — it would be ideal to hire both for comprehensive financial management.
The Bottom Line
Bookkeeping for HOAs may initially seem unnecessary, but it’s important for organizing the association’s financial data and promoting transparency. If possible, consider allotting a budget for a designated bookkeeper.
Freedom Community Management helps communities all across Florida with financial management and accounting. Call us today at 904-490-8191 or contact us online to learn more!
