Reading Financial Information – I
Reading Financial Information – I
Basic Financial Reports for All Board Members
Presented by William K. Henley, CPM
Introduction
All Board Members have a responsibility to understand the fundamental financial facts
of their cooperative. When you examine the major business problems, news headlines
and corporate scandals of the past 8 years, the names Enron, FannieMae and Lehman come quickly to mind. These, and many others, are examples of a Board of Directors not
dealing with the financial facts that were placed in front of them every month.
Does an individual Board Member have to examine the details of every financial transaction? Certainly not! But should a Board Member know what types of reports
are being presented, how to read them and how to get a sense of the financial status
and direction of the cooperative? Absolutely!
This seminar explains Board Member responsibility and then provides simple
solutions, regardless of an individual’s level of comfort with financial reports.
What Type of Report and Information is Needed?
How do you identify a Board Member? They are the cooperative member with one arm
longer than the other from carrying around huge packs of paper financial reports!
Is that you? It should not be the case. Financial reports have been found on some
cooperatives that were hundreds of pages long! Copies of checks, copies of invoices,
bank reconciliation statements, general ledger entries and financial schedules, most of
it not only unnecessary, but probably not even read by anyone.
A proper, monthly financial report can be as short as 10 pages. It will provide each
member with:
• Cash Summary of Operations
• Balance Sheet
• Statement of Profit and Loss
From those three reports, a Board Member is able to identify key areas of concern:
• The financial position of the cooperative
• Trends in operations
• Progress toward short and long term objectives
• Performance to Budget
Page Two
Reading Financial Information – I
Financial Report Types and Functions
1) Cash Summary of Operations: Balances in key checking accounts
Identifies amounts and sources of income
Details each check written during the month
Identifies accounts receivable and payable
2) Balance Sheet: Reports the position of the corporation at a point in time
3) Statement of Profit and Loss: Reports the financial results during a period of time
4) General Ledger: Reports the detailed transactions during a period the resulted in
the Balance Sheet and the P&L
5) Annual Audit: Professional assessment of the corporation’s accounting processes
and controls, reporting the results of the prior
financial year’s activity.
6) Annual Budget: The plan for financial operations for the year. It is also reported
monthly on the P&L by comparison to actual results
Basic Financial Analysis Techniques
Prior to a Board Meeting, an individual Board Member should have received the prior
month’s financial report. Taking less than 30 minutes, the reports can be reviewed for
issues that require additional information or follow up. A Board Member’s concerns
would include:
• What is the cash balance at month end?
• What are the accounts payable at month end, and are they consistent, month-to-month?
• What are the accounts receivable?
• Does reported vacancy loss match the known number of vacant units?
• What is the difference between the year-to-date budget and the actual results?
Have these differences been discussed and understood at Board Meetings?
• Are check numbers consistent, with all checks accounted? Are the payees
all companies that are familiar?
Any questions that arise can usually be answered quickly. Some may require additional
data or financial reports. In any case, a Board Member should never be reluctant to ask
a financial question. The cooperative is a financial entity, and all Board Members should
understand the fundamentals of financial reports and their community.
Page Three
Reading Financial Information – I
Terminology
A Board Member should become familiar with the following terms. All of these terms are fully defined in the seminar.
Balance Sheet
Statement of Profit and Loss
General Ledger
Assets
Liabilities
Equity
Cash vs. Accrual Accounting
Mortgage Principal and Interest
Audit
Capital Expenditure vs. Expense
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