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Tuesday, October 14, 2003

Clarity and easy reading are the key to great financial statements
By Paul Attinello, Kaled Management

Most board members aren’t financial professionals, but each month they are faced with the task of deciphering financial statements that would give a forensic accountant a headache.

One of the best practices for property management firms to employ is the financial statement that can be understood easily by the average board member.

If statements are presented in a clear format with documentation, board members shouldn’t have to be accountants to understand their building’s finances statements.

The average board members, who are not financial professionals, are busy with their own lives and businesses. Unraveling the mysteries of a financial statement can take more time than many members are willing to invest, and unfortunately that means some statements containing critical information for the fiscal soundness of the building go unscrutinized.

The basic content of any monthly financial statement includes money collected and expenses incurred. These two categories are fairly straightforward, but smart boards will look closely at the details to see how their property manager is performing in both areas. Funds collected include not only rent and maintenance, but laundry and garage income as well as late charges.

Many property managers, like Kaled Management, have instituted the option for automated payments which avoid the administrative chores of rent collection and late notices, keeping income flow consistent.

Boards should also take a look at income from reserve funds. Interest is generally rolled back into the fund, and boards have the responsibility of investing that income without risking a loss of principal. The most common financial instrument to prevent a loss of principal is the one, three, or five year CD. Management companies with large banking relations utilize money market accounts and are able to qualify for a preferred rate on the average of 1.2% as compared to the .4% average in today’s market.

While income generally hold no surprises, the area of expenditures calls for a closer look. On a monthly basis, boards can expect to see charges for salaries, benefits, heating, electric, real estate, water, sewer, maintenance, supplies, elevators, landscaping, exterminating, real estate taxes, insurance, legal and accounting fees, and mortgage payments. Kaled Management provides their clients with an easy

to understand monthly statement to help boards comprehend the fluctuations in costs. With the understanding that board members might have limited time, the statement is accompanied by a brief cover letter that shows cash on hand and expenses for the month with a unique bullet point narrative of what has taken place during the month so board members don‘t have to take the time to ask.

The best approach for management companies is a proactive stance, anticipating questions before they’re asked. A board member shouldn’t have to take additional time from their day to find out what is going on in their building.

Unlike most building managers, we provide a Kaled signature summary page which is a snapshot of the major categories, but they also compare the current month’s actual cost to the budget as well as the actual yeartodate expenditures to the total annual budget so that boards can easily see what funds remain after the yeartodate has been utilized. This allows board members to catch unusual expenses that are beginning to increase before they get out of hand, and helps them to understand why costs are on the rise. If the heating costs have gone up, they will have the tools to put in an assessment or maintenance increase.

Each category is then exploded into detail for scrutiny at the member’s convenience. Electrical, plumbing and concrete repairs can be easily seen.

Salaries are explored in regular time, with medical insurance and workman’s compensation costs delineated. Overtime is detailed with the reasons it has been incurred.

The firm also provides a listing of every paid item for the month with a copy of the invoices.

An easily readable financial statement is a formidable budgeting tool that simplifies the job of the board member who does not have a financial background.

If a board isn’t looking at these statements and understanding them, it’s like driving a car with your eyes closed you’re heading for disaster.

Founded more than 75 years ago, Kaled Management is a familyownedand operated company committed to handson property management. The company currently manages more than 5,000 residential units throughout Queens, Manhattan, Long Island, Westchester and New Jersey.

Paul Attinello is chief financial officer for Kaled Management in Westbury, N.Y.

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