Whether you serve on a board or manage an association, you know that keeping cash flow steady can be just as challenging as budgeting itself. Operating expenses keep climbing, insurance premiums are higher than ever, and vendor contracts rarely stay flat year over year.
When cash gets tight mid-year, boards are often left with limited options: dip into reserves, levy an unplanned special assessment, or take out a loan.
However, there may be a better option. Implementing a working capital contribution.
What is a Working Capital Contribution?
A working capital contribution is a one-time payment collected from each new owner at closing. Typically, the amount is equal to one to three months of regular assessments but can be higher. The funds go straight into the operating account, giving the association boosts without affecting reserves or charging existing owners.
Why Are We Seeing More of Them?
Working capital contributions have long been standard in developer-controlled communities to cover early operating costs. Lately, established associations are amending their Declarations to add them as well, especially in communities with high turnover, rising expenses, or seasonal occupancy. The extra injection of funds helps maintain service levels and avoid disruptive cash shortages.
What Does it Take to Adopt a Working Capital Contribution?
Most governing documents for older communities don’t authorize funding through working capital. That means boards can’t simply approve them at a meeting, the authority must be built into the Declaration. This requires an amendment, which means securing the required owner approval (and, in some cases, mortgagee consent). Once in place, the assessment applies automatically to all future resales.
What Are the Benefits for Boards and Managers?
- Improved cash flow stability between assessment cycles;
- Less reliance on reserves for operating expenses;
- Reduced need for emergency special assessments during shortfalls; and
- Predictable incoming funds in high-turnover communities.
When properly structured and clearly communicated to owners, a working capital contribution is more than a budget line, it’s a safeguard. It ensures that every new owner contributes to the association’s operational stability from day one, helping boards and managers focus on proactive governance instead of crisis management.
If you’re interested in adopting an amendment to implement working capital contributions, we’re here to help. Please contact an Altitude attorney with questions at 303.432.9999 or at [email protected].