Why understanding finances matters
Many condominium directors, let alone owners and investors, do not have
the capacity to access, process, interpret, communicate, and act on the
numerical and quantitative information that is presented in the condo
corporation's budgets, financial statements and the reserve fund
studies.
Condo directors are not alone.
Financial
knowledge lacking
Small business owners in Canada are sorely lacking in basic financial
knowledge that would help them to better manage their companies, a new Intuit Canada survey reveals.
While 93% of entrepreneurs surveyed believe they possess an average or
even advanced understanding of financial management principles, 39%
failed a 10-question financial literacy quiz, and 57% achieved a score
of 50% or less, the e-finance software firm found.
He was surprised by the fact that only 26% of entrepreneurs understood
the role of a balance sheet, and that’s down just 2% from the first
time Intuit commissioned the survey in 2012.
“They’re pretty basic questions (for people in business). You learn
about balance sheets even in high school,” King said.
Other results showed that just 27% could correctly identify that
permanent assets are needed to meet a firm’s long-term needs, down 1%
from 2012.
This is important
When people have sunk anywhere from $150,000 to $600,000 or more in a
condo unit, they better be able to read the budget and the financial
statements. Buying a condo is not like buying stock where you have
analysts, short-sellers and instantaneous information on selling prices
and sale volumes.
You are pretty well on your own.
If you hang on to a condo unit once the corporation has started to
slide downwards, your investment may go through these stages:
1. Values stop increasing.
2. Values plateau.
3. Values start dropping.
4. You have so little equity, that you cannot sell & buy elsewhere.
5. The special assessments and loans wipe you out.
6. Worse case: Termination of the corporation and you lose your home.
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