Financial Management

Manage budgets, contributions, and reserve account balances.

Articles

• Create a funding plan
• How do I make my reserve study match my approved Funding Plan?
• Set your financial assumptions

Frequently asked questions

How is the Reserve Account Balance Calculated?

The reserve account balance shown for a fiscal year is a projection to the end of that year. It is not the balance sitting in your account today.

It is calculated from three figures:

1. The current balance on your most recent completed financial statement.
2. Plus the assessments projected to be collected through the end of the fiscal year.
3. Less the disbursements projected for reserve study projects through the end of the fiscal year, whether or not those projects were budgeted.

Because it is a projection, it will not match a bank statement, and it changes through the year as actual collections and disbursements replace projected ones.

What does the Plans Section Include?

The Plans page lists every Funding Plan created for the fiscal year and compares them in a graph and a table showing Annual Reserve Contributions, the contribution per unit, Solvent, and Percent Funded. Solvent shows Yes when the plan's ending reserve balance never goes negative over the years shown, and No when it does. Select a plan to open its settings and choose its Funding Plan type. Financial Assumptions, reached from the top of the Plans page, holds the property level starting balance and rates a plan can draw from.

How do I View Funding Plan?

Open Reports in the left navigation and select the Funding Analysis tab, which lists each Funding Plan you have created, then select one by name. A Funding Plan also opens directly from the Plans page. The report opens with a chart, followed by a table of figures for each year: Annual Reserve Contributions, Starting Reserve Balance, Interest Earned, Total Reserve Funds, Anticipated Expenditures, Ending Reserve Balance, Fully Funded Reserve Balance, and Ending Percent Funded. Select View As PDF or Export to Excel to produce a copy. See Generate and export a report for the other controls available on every report.

Why doesn't my reserve study report match my approved funding plan?

The Summary of Funding Plans shows each plan's own contribution, while Expenditures by Category uses the Annual Reserve Contributions in Financial Assumptions for that fiscal year. To make them match, enter the approved plan's first-year contribution in Financial Assumptions and save.

See full article

How much should an association have in its reserve fund?

No single dollar amount applies to every association. The right balance depends on the size, age and components of your property. The most widely used measure is percent funded: your current reserve balance compared with the fully funded balance your reserve study calculates. Reserve professionals commonly describe 70% funded or higher as strong, and below 30% as weak, with a high risk of a special assessment. An association that is 100% funded has set aside the full amount the study calculates.

What does percent funded mean?

Percent funded compares the reserve balance recorded for your property with the fully funded balance. The fully funded balance is the amount your reserve study calculates the association should have set aside by now, given the age, Useful Life and current replacement cost of each component. A 100% funded association has set aside that full amount. A 50% funded association has set aside half. Percent funded is a widely used measure of reserve health and of the risk of a special assessment. Your percent funded appears on the "Dashboard". See How do I View Percent Funded Report? for the detail behind the figure.

What happens when an association's reserves are underfunded?

When a major component fails and the reserve fund cannot cover the cost, the board usually faces three options: levy a special assessment, take out a loan, or defer the repair. A special assessment is a one-time charge to every owner. Deferring a repair often raises the eventual cost as the component deteriorates further. Underfunded reserves can also lower property values and make it harder for buyers to obtain a mortgage on a unit. The earlier a shortfall is addressed, the smaller the adjustment needed to correct it.

Can an association avoid a special assessment with good capital planning?

Good capital planning makes a special assessment much less likely. A special assessment usually results from a gap in long-term planning, not from an event no one could foresee. When an association keeps a current, accurate reserve study and funds it consistently, major replacements are anticipated and budgeted years in advance. For the fiscal year you are planning, you can build up to five funding plans and compare them on the "Plans" page before your board adopts one. See Create and compare funding plans for your next budget year.

What is the difference between threshold funding and targeted funding?

Both are approaches reserve professionals use to set the annual reserve contribution. Targeted funding aims for a chosen percent funded level over time and produces a smoother contribution. Threshold funding keeps the reserve balance from dropping below a set minimum. The Community Associations Institute (CAI) recognizes threshold funding. Targeted funding is a common variation of full funding. The right choice depends on the association's goals, tolerance for risk and state law.

In SmartProperty, a "Threshold Funding" plan keeps the reserve balance at or above a minimum you set as a "Dollar Amount" or a "Percent of Current Replacement Cost". A "Targeted Funding" plan reaches a target percent funded by a year you choose. For the fiscal year you are planning, you can build both and compare them on the "Plans" page. See Create a funding plan.