What Are Balance Sheets, and Why Are They So Important?

If you're working with a condominium board of directors, the most important duty you have is ensuring the condominium corporations financial wellbeing. When the corporation isn't taking care of its financial responsibilities, then condo owners are put in a difficult situation.

Knowing what the corporations financial situation is from the get-go is critical to understanding where its strengths and weaknesses lie. For this reason, it's impossible to develop sound policy and make smart decisions without a good grasp of the corporations balance sheet. This important document tallies the corporation's assets, liabilities and equities.

The elements of balance sheets

Each balance sheet details the following fundamental components of the corporation:

• Equities: Simply, the total net worth of the corporation. A calculation of how much is left after all liabilities have been squared away.
• Assets: The value of various components of the corporation, including reserve funds, cash on hand, accounts receivable and fixed assets such as property ownership and large equipment.
• Liabilities: Anything the corporation could pay out for, such as utility bills, payments to contractors and employees, and debt servicing.

The sheet must balance if you want to maintain strong fiscal health. Balance sheets have the assets on one side and the equities and liabilities on the other side. Take the assets, subtract the liabilities and you've calculated the corporations equity. Though these used to be calculated by hand, these days basic accounting software can quickly create a balance sheet for you.

It's a wise idea for each balance sheet to include some recent history as well. For example, include the previous month's assets followed by the current month's assets. That way you can see in detail whether or not the corporations economic status is improving or declining.

A balance sheet describes the financial situation of a particular period, typically the last day of the month, so that you can move forward confidently. This is crucial to assemble in the lead-up to budget season. In fact, it's a good idea for the board to examine the balance sheet together to make sure everyone is on the same page. Here are some policy decisions that a balance sheet can help with:

• Will you need to charge a one-time unit owners' fee to keep the corporation in the black?
• Have liabilities come in lower than expected, allowing the corporation to save the funds for a rainy day?
• Will you need to assume debt to cover expenses?
• Can you afford planned capital investments in the property?

If you have questions about how to best plan for your condominium corporations budget for the coming year, then Imperial Properties can help. Our firm has developed a strong reputation for sound, effective condominium and residential management. We are leaders in our field because we offer unparalleled management expertise paired with exceptional service, knowledge, efficiency and cost effectiveness to serve our diverse client base. Contact us today to learn more about how we can help you.