Understanding Your HOA's Financial Statements: A Guide for Condo Owners

Your HOA's financial statements tell the story of your association's financial health. But if you're not an accountant, they can seem confusing. This guide breaks down everything you need to know to understand your association's finances and make informed decisions about your property.

Why Financial Statements Matter

Your association's financial statements show:

• How much money the association has
• Where money comes from (assessments, fees, etc.)
• Where money goes (expenses, maintenance, reserves)
• Whether the association is financially healthy
• If assessments are likely to increase

Understanding these statements helps you make informed decisions about your property and ensures your board is managing money responsibly.

Types of Financial Statements

Your association typically provides several types of financial documents:

1. Balance Sheet

The balance sheet shows what your association owns (assets) and what it owes (liabilities) at a specific point in time.

Key components:

• Assets - Cash, investments, property
• Liabilities - Money owed (loans, unpaid bills)
• Fund Balances - The difference (what's left after paying debts)

What to look for:

• Is there enough cash to cover expenses?
• Are reserves adequately funded?
• Is the association carrying too much debt?

2. Income Statement (Statement of Revenue and Expenses)

This shows money coming in and going out over a period (usually monthly, quarterly, or annually).

Revenue (Money Coming In):

• Regular assessments from owners
• Special assessments
• Late fees and interest
• Other income (rental income, etc.)

Expenses (Money Going Out):

• Operating expenses (utilities, insurance, management fees)
• Maintenance and repairs
• Reserve contributions
• Professional services (legal, accounting)

What to look for:

• Is revenue covering expenses?
• Are expenses reasonable compared to the budget?
• Are reserves being funded properly?

3. Budget Comparison

This compares actual income and expenses to what was budgeted.

What to look for:

• Are expenses over or under budget?
• Is revenue meeting projections?
• Are there significant variances that need explanation?

Key Financial Terms Explained

Operating Account

The account used for day-to-day expenses like utilities, insurance, and maintenance. This is separate from reserve accounts.

Reserve Account

Money set aside for future major expenses like roof replacement, elevator repairs, or painting. Florida law requires associations to maintain adequate reserves.

Assessments

Regular payments from owners that fund association operations. Can be monthly, quarterly, or annual.

Special Assessment

A one-time charge to owners for unexpected expenses or major projects not covered by regular assessments or reserves.

Operating Deficit

When expenses exceed revenue. This is a red flag that may indicate the need for assessment increases.

Reserve Funding

The percentage of recommended reserves that are actually funded. 100% means fully funded; lower percentages indicate underfunding.

Red Flags to Watch For

These warning signs suggest financial problems:

1. Operating Deficits

Consistently spending more than you're taking in means the association is eating into reserves or accumulating debt.

2. Underfunded Reserves

If reserves are below 50% of recommended levels, the association may struggle to pay for major repairs when needed.

3. Increasing Debt

Growing loans or unpaid bills indicate the association isn't generating enough revenue.

4. Large, Unexplained Expenses

Significant expenses without clear explanations or board approval may indicate mismanagement.

5. Declining Cash Balances

If cash is consistently decreasing, the association may be heading toward financial trouble.

Green Flags (Good Signs)

These indicate healthy finances:

• Revenue exceeds expenses - Association is operating in the black
• Reserves are adequately funded - 70%+ of recommended levels
• Stable or growing cash balances - Association is building financial strength
• Expenses match budget - Board is managing money as planned
• Low debt levels - Association isn't relying on borrowing

How to Read Your Annual Financial Statement

Your association must provide an annual financial statement within 180 days of the fiscal year end. Here's how to review it:

Step 1: Check the Big Picture

• What's the total revenue for the year?
• What are total expenses?
• Is there a surplus or deficit?
• What are the cash balances?

Step 2: Review Revenue

• Are assessments being collected on time?
• Is there significant late fee income (bad sign)?
• Are there other revenue sources?

Step 3: Analyze Expenses

• What are the largest expense categories?
• Are expenses reasonable for the size of your building?
• Are there any unusual or unexpected expenses?
• How do expenses compare to the budget?

Step 4: Check Reserves

• What's the reserve balance?
• Are reserves being funded according to the reserve study?
• Have reserves been used for major projects?
• What's the reserve funding percentage?

Step 5: Compare to Previous Years

• Are expenses increasing faster than revenue?
• Are reserves growing or declining?
• Are there concerning trends?

Understanding Your Budget

The annual budget shows planned income and expenses for the coming year. Here's what to look for:

Revenue Projections

• Are assessment rates reasonable?
• Is the budget assuming 100% collection (unrealistic)?
• Are there other revenue sources?

Expense Projections

• Are expense estimates based on historical data?
• Are there planned major projects?
• Are reserve contributions adequate?

Assessment Increases

If assessments are increasing significantly, the budget should explain why:

• Increased operating costs
• Major repair projects
• Catch-up reserve funding
• Special assessments

Questions to Ask Your Board

If something doesn't make sense, ask:

• Why did expenses exceed budget in certain categories?
• What explains large or unusual expenses?
• Are reserves being funded according to the reserve study?
• Why are assessments increasing?
• What major projects are planned?
• Is the association considering special assessments?

When to Be Concerned

You should be concerned if you see:

• Consistent operating deficits
• Reserves below 50% of recommended levels
• Rapidly declining cash balances
• Increasing debt without clear plans to pay it off
• Unexplained large expenses
• Board unwillingness to answer questions

If you see these red flags, consider:

• Asking the board for a detailed explanation
• Requesting a financial review or audit
• Attending board meetings to understand decisions
• Consulting with other owners
• Seeking professional advice if problems are serious

Resources for Further Learning

Understanding financial statements takes practice. Here are ways to learn more:

• Attend annual owner meetings where finances are discussed
• Review financial statements regularly (not just annually)
• Ask your board or property manager to explain anything unclear
• Compare your association's finances to industry benchmarks
• Consult with an accountant if you have serious concerns

Bottom Line

Your association's financial statements are a window into how your building is being managed. While they can seem complex, understanding the basics helps you:

• Protect your investment
• Make informed decisions about your property
• Hold your board accountable
• Identify problems before they become serious
• Participate meaningfully in association governance

Don't be intimidated by financial statements. Start with the basics—revenue, expenses, and reserves—and build your understanding over time. Your board and property manager should be willing to explain anything that's unclear. After all, it's your money and your building.