Industry standards suggest a minimum balance for the fund balance as a percentage of gross assessments. What range is considered minimum?

Industry standards suggest a minimum balance for the fund balance as a percentage of gross assessments. What range is considered minimum?

• A. 1-2%
• B. 2-5%
• C. 5-10%
• D. 10-15%

Answer: (B)

Having a fund balance as a cash cushion helps a community association handle unexpected costs and timing gaps between when money is collected and when it’s spent. The minimum range most industry guidance suggests is about 2-5% of gross assessments. This means, for example, if the association collects $1,000,000 in assessments in a year, the minimum cushion would be roughly $20,000 to $50,000. That level provides a practical safety net for small emergencies without locking up too much cash in reserves. Falling below this range can leave the association vulnerable to sudden costs, while higher ranges (5-10% or 10-15%) are more about comfort and risk tolerance or larger, more capital-intensive communities, rather than the mandated minimum.

Having a fund balance as a cash cushion helps a community association handle unexpected costs and timing gaps between when money is collected and when it’s spent. The minimum range most industry guidance suggests is about 2-5% of gross assessments. This means, for example, if the association collects $1,000,000 in assessments in a year, the minimum cushion would be roughly $20,000 to $50,000. That level provides a practical safety net for small emergencies without locking up too much cash in reserves. Falling below this range can leave the association vulnerable to sudden costs, while higher ranges (5-10% or 10-15%) are more about comfort and risk tolerance or larger, more capital-intensive communities, rather than the mandated minimum.