One of the board’s most important responsibilities is the management of community finances. Residents are relying on the board and the management company to ensure the protection of their investment and quality of life, all while controlling spending. This has become increasingly challenging as of late, with rising insurance costs, capital reserve legislation, and higher inflation. Before you can make sound financial decisions for your association, you first have to understand what your monthly financials are telling you.
Balance Sheet
A balance sheet is a report that outlines a company’s finances such as assets and liabilities. Your assets summarize cash you have in various accounts as well as money owed to the association. If your association possesses other assets like office equipment, gym equipment, etc. these may also be listed in the asset section of your Balance Sheet. Your liabilities reflect monies owed to outside parties. This may include any outstanding bills, wages, or community loans. In summary, the balance sheet reflects your community’s total net value.
Income Statement vs. Budget
An income statement represents a community’s income and expenditures for a given period of time as compared with an annual budget. Having a properly developed balanced budget is critical in the value of this report. One should investigate any line item that is significantly different than budget. Significant overages can highlight cash flow issues, bill payment issues, or project opportunities. The bottom line summarizes the profit or loss that your association is experiencing for the current fiscal year.
AR Report:
The accounts receivable report is a summary all outstanding fees due to the community. Most AR reports categorize receivables in a 30/60/90-day time frame. Statements of account should be sent to all delinquent homeowners. Once they hit a delinquency of 90 days, attorney collection action should be discussed. The earlier you address late payments, the easier it will be to control the cash flow of your community.
AP Report
The accounts payable report lists all outstanding bills as of the date of the report. It is important to compare these outstanding debts to the monies you have in your checking account. Decisions may need to be made if the operating cash cannot cover what is due.
General Ledger
A general ledger, or simply a ‘ledger’, is a record of a business’s financial transactions. Reading the General Ledger will itemize the transaction making up the amounts shown on the Balance Sheet and Income Statement. The information recorded is used to produce financial reports.
Taylor Management Company will make sure that monthly financial reports are delivered regularly and are easy to understand. Transparency is important to building trust in the accuracy of the numbers. For questions on capital and reserve contributions, budget increases, and unplanned expenses, never be afraid to ask questions.