In many ways, an HOA is like a small business; yours is one that’s focused on providing services (but unlike a business, you’re not focused on profits). Cash is oxygen for your HOA that lets the board pay the landscaper on time and invest funds for future improvements. But accomplishing these tasks requires a healthy cash flow. The following will go through what that is and how to use it to put the HOA operating capital into a stronger financial position.
What is cash flow and why does it matter?
The simple definition of cash flow is net amount of cash that gets transferred in and out. The goal is always to end the billing cycle with a positive cash flow. If the balance often lands in the negative zone, the first solution that often springs to mind is raising fees.
It is smart to look at annual increases so you don’t anger residents with one big catch-up increase in fees. But if it seems like the fees aren’t going far enough, you won’t want to resort to higher fees without a careful review of your expenses and cash management system. Sometimes, it’s possible to send cash flow in the right direction without having to raise fees. The following can help you get started.
Audit your vendors to improve cash flow
It’s always good business sense to make sure you’re getting what you’re paying for. And since you’re working on behalf of the residents, it’s good practice for an HOA board to make sure no one is being overcharged.
- Review the contract and use that as a guide as you review invoices from your landscaping service, pool maintenance company and other vendors.
- Request more detail if a line-item is too broad or too general. This is where unnecessary charges can sneak in.
- Do your due diligence. When a contractor is performing services, do some spot checking. Are driveways being cleared of snow by the deadline, or is the contactor always running late? If there’s a pattern of tardiness or incomplete work, the HOA has grounds to hold the vendor accountable and that should be reflected in the invoice.
- Adjust the scoping. During the contract stage, a vendor can make a powerful case for including specific services. But once the plan is put into practice, does keeping all of them make sense? It’s normal to discover items that can be cut or scaled back.
If this feels confrontational, remember, a business with integrity would respond quickly and should be willing to fix the problem and the invoice right away. The residents you represent will thank you.
Find new revenue sources
Installing vending machines is the tried-and-true method for adding revenue to an HOA budget. But you can also find other creative ways. Here are a few ideas.
- Lease ad space: Reach out to local businesses to see if there’s interest in target marketing your membership, especially if your HOA represents a sizable group of households. Lease space in the newsletter, a bulletin board (or a place where you post community news and resources), or any other conspicuous area that would get plenty of eyeballs.
- Host fee-based events: Garage sales, craft sales and other events at the site can bring in another small but helpful revenue stream. Charge a nominal fee to vendors, or admission at the door. As always, be transparent with your members about how the money will benefit their lives. Other fun social ideas: Kids craft day, plant sales, a silent auction, or a wine and painting night.
- Rent facilities: If you’re not already, assess fees for residents to use party rooms, patios and other common spaces for special occasions and gatherings. Doing so can help the HOA stay on top of preventative maintenance, but also afford improvements to keep the spaces fresh and up to date. Of course, think beyond common areas. If you also have garage space or a parking lot to spare, open it up for tenants or local businesses to lease.
Get paid more quickly
To close the cash flow gap, many businesses take a closer look at their accounts receivable. For an HOA, that typically means setting goals to improve the rate of on-time payments for a stronger, healthier cash flow. Here are things your HOA can implement to close the gap.
- Enforce late fees: Late fees convey to residents the importance of on-time payments. If you don’t already have these, or if the same fee schedule has been in place for a decade or more, now’s the time to evaluate this option. Make sure, though, that any changes in your billing practices are clearly communicated with residents, and post them somewhere where they can be easily accessed (on a website, the HOA platform, in public areas, and so forth).
- Offer automated payments: Ask your community bank how cash management tools can speed up payments. Automatic clearing house (ACH) lets you quickly and easily set up automatic payments. Once residents sign on and agree to a monthly payment date, the system takes care of the rest. On the appointed payment date, ACH transfers funds from the residents’ accounts to the HOA’s account. The HOA will have access to operating funds on the same day. Having fewer manual payments to process will free up your time to focus more on strategic tasks.
For more tools, read These 3 cash management tools can save your HOA time and money.
As a member of the HOA board, you want to be a great steward of the cash you’ve been entrusted with. Talk to one of our helpful cash management specialists in your community to learn how you can start doing more with HOA capital.