The key to proper financial management of a co-op begins with the presence of a strategic plan. This plan should include, at a minimum, a projection of necessary capital improvements; and a forecast of revenue and expenses over a chosen number of years. The number of years, included in the plan, should be chosen based upon such guidelines as to the building age, its physical condition as well as governmental requirements. Just as important is to include “quality of life” improvements for shareholders within the plan, such as an exercise facility and meeting rooms.
One essential source of information for use in the preparation of a strategic plan is a periodic reserve study. The reserve study will identify necessary physical changes to the building and suggested dates by which to implement those changes, based on the projected remaining life of capital items like boilers, elevators, piping, etc., and selected long-term expenses such as exterior repair.
Two additional sources of information necessary for the preparation of a capital budget are governmental and self-imposed life-safety and security requirements.
If there's one culprit that causes co-op boards to get behind the curve in managing finances, it's deferring essential capital item replacement. Such deferments result in more expensive scheduled maintenance and excessive cost of break-down maintenance. One sign of a board’s hesitance to keep their building in good condition is the amount of debt it carries, often resulting from failure to build reserves through appropriate monthly assessments.