Profit Centers of HOA Management Companies

Profit Centers are places in your organization where activity in done that provides a profit to the owners of the company.

Some people think of Profit Centers as specific revenue items. For example, management fee income may be a Profit Center in your organization.

Other people may look at specific activities, such as Architectural Review Boards or Compliance as different areas that would be Profit Centers in their organization.

One that is very popular in our industry, of course, is collections, where the accounting department has a Profit Center.

Profit Centers are determined by taking the revenue that is associated with a specific activity, minus the expenses that that activity costs an organization and then determining if there is a leftover profit from that specific activity.

Let’s take the example of compliance.

If you receive compliance income specifically from your clients to do compliance of their associations, you would take that income, let’s just say that’s a $1,000 a month, an if you’d paid an employee to do the compliance work $500 a month, plus had various expenses—such as stationary and postage—of another $200 a month, thus totaling expenses of $700 a month, your Profit Center amount would be $300. The $1000 minus $700 would give you a $300 Profit Center for that month.

All activity in your organization can be looked at as a Profit Center or a Cost Center.

In general, you should have as few or none Cost Centers in your organization. For example, in large companies, both inside and outside our industry, people might consider IT, or Information Technology as a Cost Center.

More progressive or innovative companies have changed IT into Profit Centers, by either

A) charging their clients specific fees for using the technology, such as a website fee or similar transaction fees if technology is being used to facilitate transactions. Or

B) they have partnered with someone that is using their technology, such as an affiliate on the website to create extra income.

Now the extra income that is created usually offsets or hopefully supersedes the expenses related with that information technology, therefore changing your information technology Cost Center to a Profit Center.

The more of these activities in your organization that you can make into Profit Centers, the more successful you’ll be and the more resources you’ll have to invest both in your company and into your staff.

Thus ensuring a long-term business that provides you with excess cash flows and less work.

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