Here are some examples of operating expenses Employee Salaries Understanding and managing operating expenses is crucial for maintaining financial stability and sustainability. These expenses are essential for the fundamental ongoing function of the association and are recurrent in nature. Operating expenses are the daily, weekly, and monthly bills the association needs to pay in the course of running its day-to-day operations. For instance, in the case of a large insurance deductible that needs to be paid, the association can borrow from reserves and create a repayment plan to restore them to the Reserve Fund before they need to be used.ĭuring economic downturns or crises, in the same manner as above, reserve funds can be tapped to provide sufficient cash flow to sustain the association, again presuming that a repayment plan is established to restore those funds back to reserves before they are needed. While the funds are in reserves to prepare for inevitable upcoming projects, the Reserve Fund offers a place where short-term, interest-free borrowing can be managed. Reserves are also a “safety net” in case of emergencies. They are there so the board has the financial resources to maintain, protect, and replace the major common area assets of the association. Reserve projects, paid from the Reserve Fund, refer to a portion of an organization's cash assets that are set aside to offset deterioration and pay for upcoming, predictable projects.Īre you curious about why these funds are so important? Because all the major assets of the association are constantly deteriorating, reserve funds allow the association to be ready when the big re-roofing, re-painting, asphalt re-surfacing, etc., bills need to be paid. In this article, we will break down the differences between reserve and operating expenses, helping you grasp their unique roles and significance. While they might sound similar, they have different purposes in the financial management of the association. In community associations, two budget terms that often tangle people up are reserve and operating expenses. Managing your expenses is a crucial aspect of any business or organization.
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