Budgets and financial reports provide a crystal-clear picture of how the association is doing. From an investment perspective, they show how unit owners, managers, tenants, building owners, board of trustees, etc., whether the property is profitable or not. If it is profitable, you can rest assured that everyone is doing a good job. 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.
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.
“My first suggestions lean on the legal side, because all condo associations are technically trusts, so start by having a trust agreement and a master deed,” says Mark L. Love, CPA, a partner at Love, Jarominski & Raymond, LLP, in Worcester, Massachusetts. “A trust speaks to the point of ‘how many board members should there be,’ ‘what’s a quorum,’ ‘what’s the year end,’ and ‘what are the year-end financial requirements?”
A master deed includes all the provisions, rules and regulations that must be followed by the unit owners.
Every month, a financial report should be generated to give an idea of where the association stands. The report compares the actual budget to the projected budget. In addition, it lists the bills that were paid and the monies that were collected. In other words, anything financial that happened that month should be presented in a financial report.