CT August 2026

“The beauty of the balance sheet is that problems tend to show up there first.”

shows $30,000 in the operating (check ing) account. On the surface, that sounds reasonable. But then you look at liabilities

scenario across several months, add a few large invoices, and suddenly an association that looks profitable on paper has board members asking why there isn’t enough in the operating account to pay the landscaping contractor. Operating Funds vs. Reserve Funds: Why the Distinction Matters A well-managed HOA maintains two distinct pools of money. The operating fund covers day-to-day expenses, such as landscaping, utilities, routine maintenance, man agement fees. The reserve fund covers long-term capital projects: roof replacements, parking lot resurfacing, eleva tor overhauls, or pool renovations. Reserve funds are built over time based on a reserve study, which estimates the useful life and replacement cost of major common area components. In the past, some associations in a cash crunch quietly borrowed from their reserve funds to cover operating shortfalls and pay it back later. That option is no longer permitted in New Jersey. Under the Structural Integrity and Reserve Funding Law, associations must maintain and properly fund reserves for major structural components-and cannot borrow from them to cover operating expenses. This makes it even more critical for boards to understand their operating cash position in real time, because the “safety valve” that some communities relied on is gone. The next time you review your association’s financials, don’t stop at the income statement. Look at the cash bal ance in the operating account and ask-if there is enough to cover current obligations. Look at accounts receivable: who owes the association money and how long have those balances been outstanding? Look at accounts payable: what does the association owe, and can the current cash balance cover it? If these numbers don’t line up, it’s a signal that the community may need to revisit its due’s structure, tighten collections, or consider other financial remedies before a manageable problem becomes an urgent one. A financially healthy HOA isn’t just one that earns more than it spends in a given month: it’s one that can actually: pay its contractors, meet its obligations, maintain ade quate reserves and operate without scrambling. That’s the difference between an association that looks good on a spreadsheet and one that actually runs well. As a property manager, that distinction is something I think about every single month. n

and see accounts payable of $180,000. That means the association owes $180,000 to vendors and has $30,000 to pay them with. Now think about that in terms of your own household budget. If you had $30,000 in your bank account but owed $180,000 in bills, you would absolutely fall behind. The math simply doesn’t work. That association has a serious cash problem. It could be a budgeting issue, an expense issue, or a collection issue- but regardless, it reflects a fundamental inability to pay what it already owes. This is exactly the kind of situation where a board needs to act quickly, accelerate collections, cut discretionary expenses, or have a difficult conversation about a dues increase or a special assessment before the situation becomes a crisis. Why the P&L Alone Can Mislead Boards If you only look at the P&L, you might not see trouble coming. The profit and loss statement measures activity over time. It tells you whether the association earned more than it spent in a given month or year. While that matters, it doesn’t show you the full picture of what your association owes right now or what’s owed to the association and whether cash is actually available to pay bills. You can run a surplus on the P&L and still be in serious trouble if cash is tied up, your receivables are aging, or payables are stacking up faster than you realize. A common scenario: when accrual accounting masks reality: Here is a scenario I encounter regularly. An asso ciation has 250 units, each paying $300 per month in dues. On paper, that’s $75,000 in monthly revenue. But what if 25 of those homeowners are 60 or 90 days behind? Under accrual accounting, the income statement still shows $75,000 in revenue- because those dues are owed. The association has “earned” that money on paper. But the operating account only received $67,500. That $7,500 gap is real and must be covered somehow, usually by delaying a vendor payment. Multiplying that

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AUGUST 2026