“Ask Kari” is a monthly, Question & Answer feature from Kari Negri. Kari has two decades of property management experience, is a featured speaker at many industry trade shows, such as AAGLA’s annual trade show, and is the CEO of SKY Properties, Inc. in Los Angeles.
Tips For Financials
Financials play an important role in the healthy operation of your building. As the subject often arises, I thought I’d share a few tips to consider when reviewing your financials:
- Month-Over-Month trends.
It’s a great idea to print out your month-over-month income and expenses each month to review trends in your financials. Seek numbers that have significantly risen or dropped per line item. For instance, if you see an increase in the plumbing line item, it may be an indication of clogs in the main sewer line or damaged pipes. In which case, you might consider quarterly jetting of the sewer lines. Quarterly jetting is a great service to consider to keep clogging issues from arising. A raise in your water bill may indicate a leak. Performing a unit-by-unit check for leaks and running toilets is recommended as a first step. Whereas a raise in your gas AND water bill may indicate a hot water leak specifically.
Account codes. Make certain that account codes are correct. For example, when you write a check to the electric company, make sure it is not coded to electrical maintenance. Sometimes, how GAAP is categorized may be slightly different than how an owner may prefer to categorize certain expenses. It’s a good idea to seek advice from your CPA to make certain that all categorizations are correct in accordance to the owner’s needs.
- Cash-flow breakdown and general ledger.
Your cash-flow report is a summery of your general ledger. You want to see very thorough notations reported on your general ledger. When a figure is higher than normal, it is thoroughly explained.
- Confirm income.
It may seem obvious, but you want to make certain all of your income has been received. Review rent rolls for each property. Make certain there are no units missing or a vacancy you are not aware of. It’s also important to confirm other sources of income: refunds, credits, laundry room coins, etc.
- Review profitability.
Due to rising rents, some properties have lower expense ratios. If you believe your expenses are running higher than industry standard, then you need to dig into day-to-day expenses or raise rents.
You want to make certain that what you are paying for vendor services is reasonable. To confirm prices are reasonable, get bids from three vendors for each service to compare with what you are currently paying. Of course, it’s important to understand the quality and scope of work for each vendor so you are comparing apples to apples. As an example, some gardeners bid to mow and blow, whereas others include trimming hedges.
- Look at big picture expenses.
Capital expenses include roofs, pools, and the on-coming earthquake required retrofit. It’s time to start saving if you have not begun already. Save now for large, capital expenses. Know what a new roof will cost and when you will need it (how many years). What is condition of your plumbing? How much will a new a/c unit cost — how old are they? How often will you touch-up paint, etc
Once you know those numbers, you can put away what you need each month in anticipation. For example, if you need a new roof in 5 years, take that approximate cost and divide it by 60 months.
- Have a budget.
Make a prediction of each expense, on a monthly basis, and do a variance report to stay on track.
As always, please remember, I am not an attorney. Seek clarification through your attorney. All articles are simply an opinion. Stay in touch at www.GetSky.net
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