Although it may not be glaringly obvious, there are many accountants that practice in the area of cooperatives and condominiums. There are those who work at large regional firms, and those who work at firms represented by a sole practitioner. Many of these professionals match the stereotype of being a “bean counter”, focused on just the facts, but a rare few are the type who offer a broad range of industry experience which they readily share with their clients.
Knowing the difference between these types of accountants is important for those on the board of a cooperative or condominium. The board can range from a fully functioning team to only one volunteer board member seemingly doing everything themself. The spectrum of desire to be involved for board members can also range from understanding the details of this unique niche of an industry, which includes reading industry publications, to attending seminars (more recently webinars), and barely paying attention to what’s happening and simply approving the work of hired professionals. No matter where your property’s board falls on that scale it is important to have an accounting firm that expertly represents your board.
As part of our practice, we prefer working with the fully involved board who wants to understand what’s happening with their property’s finances, finds our expertise helpful, and seeks it out regularly. Thus, we offer cooperative and condominium board members practice aids, blogs, and video presentations to support them. This does require an investment on our part both in the creation of those items and in the conversation time with our clients that is necessary to find the solutions that work best for them. Our culture is to encourage that communication. For the board who are not as savvy and don’t have our expert advice, the financial areas we believe they should pay extra attention are both the annual financial statement as well as the annual operating budget.
In this blog, we will focus on the annual operating budget process, which usually occurs in the Fall. The financial effect of the COVID-19 crisis on your property is probably only now becoming clear and still has the potential to change. We urge you to start looking at your budget as soon as possible so you can plot viable solutions to avoid surprises later.
The most significant aspect of the annual operating budget that we find is not paid sufficient attention is the projection for the current year. Most budget models which managing agents use to help with creating the draft and seeking approval of the next year’s budget include a projection of where the current year is going. This offers guidance on the current realities of the, and a forecast of whether a deficit will be reflected in the current year financial statement produced after year-end. Not only do prospective buyers not want to see deficits but they tend to reflect a real use of your cash. Cash in the post-COVID-19 era has become more of a king, with minimum levels of reserves sought and vendors requiring timely payment the days of “I can let you slip awhile” are now gone. Certain properties with potential income tax situations (yes, they exist) also can rely on this aspect of the budget process to minimize those taxes.
The projection aspect is also a source of knowledge of what your costs are each year. The potential effects of loss of unit owner and commercial lease revenue need to be dealt with and unfortunately other than borrowing, extra money comes from unit owners.
In truth, the budget process is the best time of year for the board to understand how they spend their money. Monthly discussions of we must or want to do this and desire to maintain or enhance the quality of life for tenants can lead to missing the forest for trees. By rolling up your sleeves and delving into as many of the most susceptible to savings and/or most substantial cost areas, you take the actions that you cannot month to month. By paying extra attention to each aspect of the operating budget you can, you will find cost savings and you will better understand the operation of the property.
This is not just an area for the boar Treasurer, enlist the assistance of other members here. If a Finance Committee exists, then assign tasks and use every person. If as Treasurer you do not have a Finance Committee, look around for qualified board members and active unit owners to help.
Your board should be focusing on the operating budget as soon as possible. Don’t wait for the last minute to plan when you know there’s a possibility you may have to forewarn unit owners of additional charges that they will incur. This is an extra special budget year and starting early is only in your best interests.
With over 35 years of experience serving co-ops and condos, the Czar Beer team can outline specific steps you should take to minimize taxes, maximize loan eligibility, and enhance the value of your property. For more information, contact us at email@example.com or (212) 397-2970.