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Understanding Your Community's Financial Statement

EJF Real Estate Services - Tuesday, October 6, 2020

At EJF Real Estate, we are always focused on offering the best possible service to our communities. When looking at property management in Washington D.C., there are many different options. We greatly appreciate your trust in us.

As part of our ongoing work to serve our communities, Scott Burka and Sam Le Blanc recently completed an extensive webinar on two major issues. The first was a Covid-19 update for our communities. The second was a primer on understanding the EJF monthly financial report.

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Covid-19: Updates and New Policies

We are all continually learning how to adjust to the “new normal” of Covid-19. There are some important Covid-19-related developments that you must consider for your communities.

Mask mandate: This has been a key issue in property management in Washington DC. Order 2020-080 mandates that a mask must be worn in common areas. Also, if you have a building that has its own direct employees, you are technically required to supply masks.

DCRA requirements: This centers on janitorial requirements amidst Covid-19. They require building owners to clean common areas and high-touch surfaces. While we don't believe your janitorial company needs to come in every single day, the requirements also state that you must keep cleaning logs.

Insurance costs: We have been told that insurance premiums will likely rise 10-20% because of Covid-19. From a budgeting standpoint, it is important to keep this in mind. Think about scheduling a call with your insurance agent to learn more.

These are just some of the additional requirements imposed by Covid-19. If you have any doubts about your community’s compliance, don’t hesitate to speak with your associations’ attorney.

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Understanding Your Monthly Financial Report

In the second part of the webinar, we discussed how to read EJF’s monthly financial reports. Your financial reports are sent to you on the fifteenth of each month. They are automatically filled in Vantaca. In Vantaca, you can see things like financials, copies of bank statements, and more.

The crux of your monthly financial reports is the balance sheet and your statement of revenues and expenses. You can use both of these documents as you complete ten steps to understanding your monthly financial report.

Closely monitor your operating cash. You can find this information on your balance sheet. While cash can fluctuate month-by-month, you’ll want to have your operating account’s cash balance equal to approximately 10-20% of the annual assessment budget.

Track your reserves balance. Specifically, you’ll want to see if your reserve account displays the monthly reserve contribution transfer. Also, see if your reserve fund balance is at least 80% of the Reserve Study recommendation. Ultimately, look at the total amount that you have in your reserves and see if contributions are being made every month.

Look at accounts receivable. Accounts receivable is on your balance sheet. Vantaca also provides a graphic on what types of receivables you’re owed and who specifically owes you. See if your receivables are increasing or decreasing. In the end, you need to stay on top of this so that you can pay your bills.

Woman investment consultant analyzing company annual financial report balanceMonitor your equity section. When looking at the equity section of your balance sheet, see if reserve transactions were posted. You also want to track net income (specifically, whether it is positive or negative). It’s especially helpful to monitor as you get close to the end of the fiscal year. Not every building has a surplus every month.

Review monthly numbers on your statement of revenue and expenses. Here, you want to pay attention to year-to-date columns. Focus on those areas with variances that are greater than 10%. You want to pay attention to both the current period and year-to-date information.

Monitor your summary statement of revenue and expenses. Take note of gaps, trends, or missing information. This summary statement is helpful because it shows monthly data of the trailing twelve months.

Take note of the general ledger. It provides detail about every account. That being said, for most people, it is more information than they want to see. Because of this, it is typically most useful to look at the expense items. It shows you who was paid and how much they were paid.

Check the bank reconciliation report. Looking at this report, you can see accounts with missing statements, stale checks, or deposits. The missing statements will say “Out of Balance.” If you see them, you should bring it up with your manager or with the board to get copies of statements.

Review bank statements. They show all of your activity. Specifically, look at checks to identify payees or amounts that seem unusual. If so, don’t hesitate to seek clarification.

Look at investment accounts. Review these accounts for upcoming maturity dates, cash balances, and types of investments. Your cash balances should not be too large, as you are missing out on a better rate of return.

Take Action Today

Whether you need to take precautionary measures for Covid-19 or were looking for more clarity on your financial statements, we hope that the webinar is helpful. If you have any further questions about this or property management in Washington D.C., don’t hesitate to contact us.

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