Financial Controls Essential for Sound Management

The management of a strata company is not much different from the management of a business. They both need to operate within the parameters of legislation and they both require sound operating procedures and skilled staff to provide a service. Most importantly, they both need to keep detailed and accurate accountingrecords to control costs, report on the financial state of the company and lodge tax and corporate returns with government agencies. In this respect, a strata company is a business. Its structure is different so it is not subject to Australian Corporation’s laws, but it is a legal entity carrying on an enterprise and is subject to Australian tax laws.

Some flexibility in the presentation of financial reporting data is acceptable as some strata companies have specific presentation requirements. However, most strata companies require financial systems and reporting methods to follow standard accounting conventions and protocols. From the point of view of the individual members, the most important issue in the management of their assets is ensuring sound financial control over their investments.

What are the Most Important Reports?

Regardless of the way they are presented, the strata company Council would be expecting to see certain reports on a regular basis, most of which are required by legislation. The most important document is the Annual Statement of Accounts that is required each financial year, which would typically be presented as an Income Statement (or Profit and Loss) and a Balance Sheet.

The Income Statement, as its name suggests, reports all the income and expenditure for the financial year and shows the profit or loss made in that year. The Balance Sheet reports on the assets held by the strata company and the liabilities attributed to it. The members of the strata company must know if the value of their assets is sufficient to cover the liabilities incurred, should the company be liquidated.

When Professional Assistance is Needed

The level of complexity involved in producing these reports has seen most strata companies seek professional assistance to manage their finances. This is the role of a professional strata management company or agency. Experienced strata managers act in the same capacity as the manager of a public or private company. As such, they are experienced in running the management systems that ensure sound financial control of income and expenditure.

Successful businesses and companies rely on their budgets to control costs and identify problem areas, and strata companies are no different. An annual budget of estimated expenditure from the administrative fund for the following year must be presented to the Council. They also require a provision for likely future costs from the reserve fund. Both these reports are used to prepare a funding proposal for the levying of contributions to both these funds for the coming year.

Once the budget has been approved, it is the driving document for all expenditure for the coming year. It allows the strata manager to make decisions and arrange items such as maintenance, provided they have been approved in the budget. Budgets are a proven financial tool that delivers management the operational control necessary to get things done, but allows the Council to retain financial control.

Strata management companies handle all the administrative, financial and management responsibilities of the Council and the daily operation of the building complex. The reporting mechanisms allow the Council to be fully informed, but not have the pressure of managing everything themselves. For more information about strata management, click here.