Reading a condo association’s balance sheet can provide valuable insight into its financial health and overall financial position. It also helps ensure the association makes smart financial decisions in the future.
Whether you’ve been elected to your association’s board member or are just a unit owner in your condo community, it’s important to be able to navigate your way around a balance sheet. Here are the key elements to consider when reading your condo association’s balance sheet.
Balance Sheet 101
Below are the common elements you’ll find on your association’s balance sheet.
● Assets – The balance sheet will list the association\’s assets, which represent what it owns or is owed. Common assets include cash and bank accounts, accounts receivable (such as outstanding assessments from unit owners) and any reserve funds. Pay attention to the liquidity of assets, as cash and easily accessible funds are important for covering immediate expenses.
● Liabilities – Liabilities represent the association’s outstanding debts or obligations. This may include accounts payable (such as unpaid bills or invoices), loans or mortgages, accrued expenses and any pending legal or insurance claims. Be sure also to assess the amount and nature of any liabilities, as excessive debt or significant pending claims can impact the association’s financial stability.
● Equity or Net Assets – The equity section of the balance sheet represents the association’s net assets. These are calculated by subtracting total liabilities from total assets. Positive equity indicates a healthy financial position, while negative equity could indicate financial instability or insolvency. Evaluate the trend in equity over time to assess the association’s financial progress.
● Reserves – If the balance sheet provides specific information about reserve funds, pay close attention to this section. Reserve funds are crucial for covering future repairs and replacements.
● Assessments receivable – Look for a separate line item or note that indicates assessments receivable. This represents any outstanding assessments owed by unit owners. Assessments receivable can impact the association’s cash flow and ability to cover expenses.
Lastly, it can be informative to review balance sheets from previous periods to identify trends and changes in the association’s financial position over time.
If you are unfamiliar with reading balance sheets or interpreting financial statements for your condo association, consider talking to an association management company that can help you understand the specific details of the balance sheet and provide insight into the association’s financial health. Our team at First Community Management is here to help. Contact us today to learn more about how we help condo owners, board members at the association at large.