For a crystal-clear picture of how an association is doing, there are few better lenses than the community's budgets and financial reports. From an investment perspective, they show the shareholders, managers, tenants, owners, and board whether the property is solvent or not. If the numbers add up and the monies coming in and out balance, you can safely assume everyone is doing their job, and upholding their financial duty to the community. If the property is in the red, it’s important to determine why that is, and what needs to be done differently to turn the situation around and restore solvency.
Maintaining and updating the accounting of their property is one of the primary responsibilities of a board—one that is all-too-frequently neglected, according to the pros.
Brad L. Schneider, CPA, president of CondoCPA in Elmhurst, says that there are three main purposes of financial documents. “First, they assist the property manager and the board members in managing the association in the short term and the long term. Second, financial documents will show unit owners that the management and board are doing a good job and to alleviate suspicions that there is anything going on that is not in the best interest of the association. Lastly, they can be a good sales tool to help give a good impression to prospective buyers that the association is on sound financial footing and that it is run in a professional manner,” he explains.
It’s important to understand each financial document and its purpose so you can have a better understanding of exactly what’s going on in your association. So here’s a little Financial Paperwork 101.
Financial statements show the income and expenses for an association. Steve Silberman CPA, shareholder at Frost, Ruttenberg & Rothblatt, PC in Deerfield, suggests that these files be updated on a monthly basis and smaller associations can get away with doing so once every quarter. Reviewing and recording changes and discrepancies is important, otherwise the process becomes almost worthless. What is the point of creating and maintaining a budget if you are not sure of your incoming and outgoing expenses?