How to read your condo corporation's financial statements

Every board member shares responsibility for the corporation's finances, not just the treasurer. The good news is that a condo financial package tells its story in four parts, and each one can be read with a few simple questions in mind.

What is in a monthly financial package?

A complete package normally includes a balance sheet, an income statement compared against the budget, a reserve fund summary, an accounts receivable listing showing arrears, and the bank reconciliations behind them. If your board receives less than this, or receives it months late, that is the first thing to fix. With real-time accounting the same information is available on demand instead of once a month.

How do I read the balance sheet?

The balance sheet is a snapshot of what the corporation owns and owes on one date. Check three things. Cash: is there enough in the operating account to cover a normal month? Receivables: how much is owed by owners, and is the number growing? Liabilities: are there unpaid bills or loans you did not expect? Also confirm the operating fund and the reserve fund are shown separately, because mixing them is a serious red flag.

How do I read the income statement?

The income statement shows money in and money out over the period, next to what the budget expected. Do not read every line: scan the variance column for the biggest gaps and ask why they happened. A utility running far over budget, or maintenance running far under while requests pile up, tells you more than the totals do.

What should I check on the reserve fund?

The reserve fund pays for major repairs and replacement of common property over the long term. Confirm contributions are going in on the schedule your reserve fund plan calls for, that the money is held separately and invested appropriately, and that withdrawals match approved projects. Alberta corporations must have a reserve fund study done and update it on a regular cycle, and healthy contributions today are what prevent special assessments tomorrow.

What about arrears?

The receivables listing shows who owes what and for how long. A few owners a month or two behind is normal life; balances aging past ninety days without a documented follow-up process is not. Ask what the collection procedure is and whether it is being applied consistently.

Questions that keep managers honest

When were the bank accounts last reconciled? What are our three largest budget variances and why? How much of our receivables is older than ninety days? Are reserve contributions on plan? A good manager answers these on the spot. If the answers require weeks and follow-up emails, read our post on the signs it is time to change management companies.