Maximizing profitability as a condo or HOA portfolio manager is always a top goal. One comprehensive study found that over 90% of property management companies had growth as their #1 priority.
Acquiring more clients is one of the main ways property management companies can generate additional revenue; however, companies can also lose good clients if they try to take on too much work or reduce their service standards.
Teams also have to worry about the rising costs of insurance, utilities, labor, etc. The cost of everything has gone up, forcing leaders to get creative.
It’s a delicate balance, but growth can be achieved with some strategic planning and the right toolset.
Table of contents
- Proactive financial planning and management
- Long-term reserve planning
- Financial controls
- Tech and AI tools
- Revenue diversification and enhancement
- Negotiate with vendors
- Encourage self-service
Advanced financial strategies to maximize profitability
1. Proactive financial planning and management
While every company needs to have a solid financial plan, your company cannot succeed if your clients are not succeeding. So, prioritizing the financial health of your communities is the first step to maximizing profitability for your own organization.
Comprehensive budgeting
Ignorance is not bliss when it comes to financial management. Condominiums and HOAs must have detailed annual budgets covering all expected income and expenses, capital improvements, and long-term projects.
Your staff may already be responsible for assisting with this responsibility. However, if the board does this themselves, but you’ve noticed the numbers don’t add up, it may be time to hire a financial expert. Good intentions are not enough to stabilize multimillion-dollar budgets.
Real, accurate data is required to build a trustworthy annual budget, and sometimes, the board requires more help than your staff can reasonably offer.
Finally, regularly review the budget and make adjustments as needed to accommodate goals and market changes.
Explicit vs implicit costs
When it comes to budgeting for your company, factor in the explicit and implicit costs.
Explicit costs are those that require a direct monetary payment, such as compensating your staff for their work.
Implicit costs, on the other hand, are the opportunity costs of using resources in a particular way. In the context of property management, an implicit cost could be the amount of time a manager spends performing manual tasks.
Both explicit and implicit costs are crucial in calculating total costs, which in turn influence profit maximization.
2. Long-term reserve planning
Returning to condo/ HOA finances, ensuring your clients’ reserves are adequately funded is another must. Few things shake owner confidence faster than a big special assessment.
By allocating funds strategically, it’s much easier to avoid special assessments and maintain property values.
The CAI recommends commissioning a reserve study and/or updating the current reserve study at least every 3 years. The report should also be reviewed annually.
Investments
In most cases, condominiums and HOAs can invest some reserve funds as long as there is enough money available for immediate needs. However, you should always check state laws first to see what is and isn’t allowed.
Since community associations are non-profit organizations, they cannot afford to lose money. Investing in FDIC-insured money market accounts and certificates of deposit (CDs) is often recommended since these are low-risk options.
While you may need to do some research, investing funds is a smart option because it creates additional money for your clients. What better way to prove your worth than to help your communities generate additional reserve funds!
3. Financial controls
You don’t have time to micromanage every transaction, which is why financial controls are so essential. 98% of the time, board members will not intentionally mishandle funds, but mistakes do happen.
Financial controls are part of a good risk management strategy; you anticipate threats that could potentially affect the association’s finances, then take steps to prevent or respond to those risks.
Financial controls include measures like requiring dual signatures on checks, conducting regular audits of the association’s financial records, and implementing strict accounting practices.
It is also important to ensure financial duties are not the sole responsibility of one board member. By distributing responsibilities, it becomes more difficult for one person to intentionally steal or mishandle funds.
4. Tech and AI tools
Portfolio managers are strongly encouraged to use software that can help automate and improve accounting processes.
Trusted accounting software like QuickBooks not only reduces workloads for management, but it creates a digital paper trail of every payment, invoice and outstanding balance.
With accounting software, your team has a clear picture of all the moving parts. Plus, reports can be produced with one or two clicks. That used to take managers hours to complete. Now, you’ve got time to take on new clients.
AI is also transforming condo and HOA accounting in a big way. There are systems designed to forecast budgets using machine learning and predictive analytics. The result? More accurate and efficient financial plans, and less stress.
5. Revenue diversification and enhancement
Explore revenue streams
Take some time to consider revenue opportunities beyond standard management fees, such as offering premium services or negotiating referral agreements with service providers.
Optimize rent and fee structures
If your company takes care of rentals, regularly benchmark and adjust fees based on market analysis to maximize income without compromising competitiveness.
6. Negotiate with vendors
This is not a new strategy, but it has proven to be beneficial to all parties in some way. Effective negotiation is crucial for securing the best terms and pricing for services like maintenance, repairs, and landscaping. The more clients you have, the better the rate.
By negotiating rates with vendors, you can offer maintenance services to your communities at a competitive rate – something they could not secure on their own. This is one sure way to maintain loyal clients and attract new ones.
Plus, you’re generating business for the vendors you like, which incentivizes them to perform good work for your condominiums and HOAs.
Just remember to pay your vendors on time, and respond if they have questions or feedback.
7. Encourage self-service
The final strategy here is to get owners and residents to do more for themselves. Use software that has tools for managers and owners/residents. This way, they can view financial records, pay dues, and communicate with management, whenever it is most convenient for them.
Not only does self-service help support higher satisfaction rates, but it also frees up a lot of time for management. Instead of responding to 50 FAQs and finding 5 different forms, your team can use that time to complete more complex work.
Conclusion
If one of your main goals is to increase revenue, know that it is possible. Property management companies will need to find ways to increase efficiencies so that they can complete more work with the same number of resources.
Similarly, they will need to keep existing clients happy so that they don’t lose revenue.
Good people skills, dynamic software, and a bit of creativity will help your company achieve its goals and remain competitive.
