Community associations are like businesses; they need money to function and thrive. However, like many businesses, they can make mistakes, leading to financial fails. Check out these three top financial fails and learn how your association can avoid them.
Trusting the Wrong People with Too Much Power
Board members and community managers have a lot of power, including spending association funds. If you choose the wrong people to lead your community and give them the tools they need to cheat you, you could end up losing a lot of money. One association allowed board members to use debit cards to pay for community costs, but some members used the cards to pay for personal items, such as food and personal cell phones. Another association ended up losing hundreds of thousands of dollars when a community manager suddenly quit after fudging the numbers and stealing their money.
The solution is simple: do your homework. Whenever you have people in power, do background checks to look for red flags, such as criminal records. Even if they don’t have a criminal record, you never want to give someone absolute power. An HOA needs to have checks and balances, so no one can sneak money without someone finding out before it’s too late.
Failing to Understand Taxes
Taxes are complicated, and it’s easy to underpay or overpay without even realizing it. One association used a professional tax firm each year, and they kept paying thousands in income taxes. One board member finally decided to do some research and discovered that the taxes were being done incorrectly. They were supposed to not be paying anything.
An association needs money to pay for many things, but overpaying taxes should not be one of them. Similarly, you don’t want to underpay and end up with a big fat bill or an audit. Always make sure to hire a firm or person who specifically knows association tax rules and has proven experience.
Not Paying Dues and Assessments
The last financial fail is a little different than the rest. It’s not a mistake made by the board or community manager. It’s one made by homeowners of the HOA. A homeowner failed to pay their assessments for years, leading to thousands in dues, late fees and interest. At court, the homeowner tried to protest the fees, but lost and had to pay over three times what they owed.
You have less control over this fail, but you can still urge homeowners to pay their dues. Let them understand the importance of their dues and what will happen if they fail to pay them. If someone fails to pay them, follow up with what you said you would do, such as taking them to court.
Just like any business, associations can make financial mistakes. However, with proper research, experience and education, you can avoid making major mistakes that could cost you thousands.