As an HOA property manager, one of your single most important duties is ensuring that community funds are used appropriately, in the best interests of the HOA. Part of this involves finding a good HOA accounting software suite… but it also requires using different funding pools in the right way, for the best returns.
One critical area to focus on is proper use of operating funds vs reserve funds. These two pools of money have very different purposes, and it’s vital to keep them separate.
Understanding the Differences Between Operating and Reserve Funds in HOA Accounting Software
1. The Operating Fund
The operating fund is for relatively minor payments needed for the day-to-day operation of your HOA in normal circumstances. This includes matters such as:
- Utility bills (water/electric/internet/etc.)
- Property taxes
- Accounting or legal fees
- Office expenses (paper, computers, etc.)
- Landscaping and trash collection (if applicable)
- General upkeep and maintenance of communal areas
The operating fund can usually be estimated pretty well simply by looking at the operating costs from the previous year, and then adding a bit more to account for inflation.
2. Reserve Funds
As the name implies, reserve funds should be kept in reserve and not used for day-to-day operations, so that they can be used for larger-scale projects. If you’re planning major renovations or upgrades, that would come out of the reserve funds. For example:
- Re-roofing the central office
- Painting communal buildings
- Major landscaping changes or additions
- Large equipment replacements, like replacing the pool’s pumps
- Any other large-scale changes
In addition, the reserve fund would be what you dip into in case of emergency. If a flood wipes out your fences, or high winds rip the roof off a public building – that would come out of the reserve fund.
It’s important to always keep some money aside for your reserve fund, rather than keeping it all in the operating fund. Some of these things can be planned for – you’ll know if you need to repaint a building and can work that into the budget. But there should always be something in reserve.
Asyst6 – HOA Accounting Software by HOA Professionals, For HOA Professionals
If you’re looking for a better way to handle your HOA finances, Asyst6 is here to help! We’re all former property management pros, and we created it specifically to address the needs of managers. Contact us to learn more!Posted by Angie Jimenez Posted on 25 Jun