Not everybody on a co-op or condo's board is an accountant (or can even balance their own checkbook, for that matter.) No doubt, handling large amounts of money for an entire building is a huge responsibility. Residents, therefore, rely upon their board to make good financial decisions on behalf of the entire community in an effort to protect its individual and collective assets.
Although the terminology is different, and the dollar amounts and orders are of a much larger magnitude, at a fundamental level, managing the finances of a building is not so very different from managing your own finances. What is prudent for the latter is prudent for the former, and the mistakes people make managing their own money—using credit cards to pay for fixed expenses, for example—are the same ones board members often make.
Here are some financial basics, as well as a few common mistakes boards make when dealing with their proverbial pocketbooks—and how your board can avoid them.
What Am I Looking At?
"The financial statements of a co-op or condo contain the same basic information as that of a commercial business," says Carl Cesarano of the Manhattan-based accounting firm Cesarano & Khan, P.C. "The statements include the balance sheet, statement of revenues, expenses and accumulated surplus or deficit—also known as retained earnings—statement of cash flows, and notes to the financial statements. Building boards should use these financial statements in conjunction with a well-organized management report."
According to Cesarano:
A balance sheet reports assets, liabilities and the difference between the two, which is referred to as stockholders’ equity (condos use the term "fund balance" or "members’ equity"). Assets are presented in order of liquidity, and liabilities are presented in order of maturity.