Stay on Top of Your HOA Management’s Reserve Fund With These Helpful Tips
As an HOA board member, you carry the responsibility of managing the community funds and making sure that common areas and amenities are well-maintained. However, with so many community management tasks on your plate, it can be easy to let reserve funds sit on the back burner.
A reserve fund is a crucial part of any HOA’s financial planning and is used to cover major repairs, replacements, and unexpected expenses. Therefore, it’s important to regularly manage and maintain your reserve fund in case any unexpected costs arise. To ensure that you’re staying on top of your community association’s reserve fund, here are some helpful tips to follow throughout the year.
Undergo a Regular Analysis
One of the best practices for managing your reserve fund is to undergo a regular financial analysis as part of your reserve study. This involves reviewing your HOA’s financial statements, identifying any potential shortfalls in the reserve fund, and coming up with strategies to bridge the gaps. This should be done at least once a year, typically during the budget planning process, to ensure that the reserves are properly funded.
A financial analysis should also include a review of all recurring expenses, such as insurance, maintenance, and utilities. This will help identify any areas where costs can be reduced, freeing up more funds in the reserve. It’s also important to monitor any major repairs or other projects that may be coming up in the future and adjust the reserve contributions accordingly.
Clearly Identify Reserve Contributions
As many as 70 percent of all HOAs in the United States have underfunded reserves, typically due to a lack of transparency. To ensure proper management of the reserve fund, it’s crucial that you clearly identify reserve contributions on your HOA’s financial statements. This allows for transparent communication with homeowners, helps them understand the importance of the reserve fund, and reassures them that you’re fulfilling this aspect of your fiduciary duty.
Clearly stating reserve fund contributions will also give your HOA board a better understanding of how much money is available to cover future expenses. Combining operating funds and reserve funds as one line item in your financials can cause confusion and may even lead to mismanagement of funds. By clearly identifying reserve contributions in the financial statements, it will be easier to track the growth and usage of the reserve fund.
Keep Reserve Cash in a Separate Bank Account
Another best practice for managing reserve funds is to keep the reserve cash in a separate bank account. This is not only for budgeting purposes but also for security and accountability reasons. By keeping the reserve funds in a separate account, you eliminate the risk of confusion with operating funds.
Another benefit of keeping reserve funds in a separate bank account is that you can keep them in a secure savings account rather than a checking account. Whereas operating funds typically need to be kept in a checking account for easy, continuous access, reserve funds can be tucked away in a savings account to collect interest until the funds are needed.
Check on Your Reserve Fund’s Earned Interest
Since your reserve fund isn’t expected to be spent immediately, you can keep that cash in a high-yield savings account to allow it to grow and cover future expenses. If you have your reserve fund in a savings account where it’s accruing interest, make sure to regularly check on the account’s interest rate and growth.
Periodically, it’s advised that you inquire with your banking partner about any new, higher reserve interest-bearing programs. As interest rates fluctuate and the market changes, new offers may become available that allow you to optimize your community’s cash savings and help it grow even more rapidly.
With over 30 years in the industry and over 1,500 successfully managed communities, The Management Trust has the expertise to guide you in all aspects of community association management, including HOA financial management. To learn more about our comprehensive community management services, including assistance with HOA reserve fund management, contact us today. We look forward to working with you!
