On the Money: Getting the Most Out of Your Financial Statements

"I think one of the most important things is whether the building has generated a profit or broken even for the year," says Michael Esposito, a partner at the accounting firm Kleiman & Weinshank. "That speaks to whether the level of maintenance or common charges was proper and whether there will be increases in the next year or years."

This is of such paramount importance because many boards have the unrealistic expectation that monthly charges should never go up. "Unless there's a unique situation, I laugh when I hear a co-op or condo saying, 'We haven't raised the monthly charge,' because in general, expenses go up from year to year" with rising staff salaries, property-tax increases, and such unavoidable expenses as those for fuel, electricity, and insurance. "Some prudent boards build in a nominal increase, one or two percent, just to get shareholders used to it," Esposito says. There is a caveat: "Maintenance [and common charges] still must be competitive with maintenance [and common charges] in the area. It's a balancing act."

Beer agrees. "Most of the increases have been in the three to five percent range in the last couple of years," he says. "With buildings keeping costs down and [instituting increases] below that level, that's something boards should share — how hard they're working to keep increases low in comparison with other buildings." This puts a positive yet utterly realistic spin on maintenance or common-charge increases. You can get a sense of other buildings' increases by asking your property manager and accountant, Beer says.

The second important thing? "The amount of cash that the building has in relation to future work that you need to do," says Beer — noting that this does not necessarily mean how much you have in your reserve fund. "Reserve funds can be restricted or non-restricted," he explains, because of "lender restrictions, income-tax-basis restrictions, or even just designations by the board. For example, sometimes transfer fees [aka flip taxes] can only be used for major capital repairs. So I try to keep [mentions of this benchmark] in terms of cash on hand."

The third important thing, says Beer, is the amount of arrears. Boards, he says, need to reinforce "the fact that it's important everyone pay their monthly charges on time, because if a person or a group isn't paying, that creates a burden that affects everyone else." He's not an advocate of shaming specific residents, a tactic that a number of condominiums use when standard methods of collecting arrears have been exhausted. But he does agree that residents have a right to know of the existence of particularly large individual arrears — what he calls "the outliers" — in the context of "what's being done to collect it."

Overall, says Esposito, "You project expenses and income, including ancillary income from laundry rooms, etc., and the key thing with financial statements is: Did you generate an operating surplus or loss? Maybe a board did a poor budget and overcharged everybody. Surplus is not a bad thing," he says. "Too big a surplus could be."

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