Reading VvE annual accounts: the five figures that matter
The annual accounts are the financial X-ray of an owners' association. You do not need to be an accountant to read them, you only need to know where to look.
In short
- The annual accounts are adopted each year by the general meeting; if that has not happened, the association is not functioning properly.
- The five items that matter: reserve fund, receivables, operating result, maintenance costs and next year's budget.
- Receivables are unpaid contributions from fellow owners; a high figure means the rest are covering them.
- A structurally negative operating result almost always leads to an increase in the monthly contribution.
Why the annual accounts matter more than the brochure
The sales brochure tells you what the association contribution is now. The annual accounts tell you whether that contribution is sustainable. That difference can be hundreds of euros a year, and sometimes a one-off levy of several thousand. Always request the most recently adopted annual accounts, plus the budget for the current year.
1. The reserve fund
Found on the balance sheet, often under "provisions" or as a separate savings account. Do not just look at the amount but at the trend: has it grown, stayed level or fallen? A fund that falls without any major maintenance having been carried out is being used to plug holes. Then put this figure next to the MJOP, and see how to spot underfunding.
2. Receivables
These are the contributions fellow owners were supposed to pay but did not. A small amount is normal (someone pays a month late). An amount running up to several per cent of the annual budget means one or more owners structurally do not pay. The association still has to incur the costs, so in effect the other owners are advancing the money, and that will be you. Check whether the association actively pursues collection; you hear that back in the minutes.
3. The operating result
The difference between what came in and what went out, excluding the reserve fund. One loss-making year can be explicable (a harsh winter, high energy prices). Three loss-making years in a row means the monthly contribution has been set too low. The correction will come at some point, usually as a ten to twenty per cent increase all at once.
4. The maintenance costs
Compare the actual maintenance costs with the budgeted ones. Structurally spending much less than budgeted sounds thrifty, but with a building it usually means planned maintenance has been postponed. Structurally spending much more points to unplanned repairs, often the result of maintenance postponed earlier.
5. The budget for next year
This is where you see the future. Has the contribution been raised, and by how much? Is there an item for a major project? Is the contribution to the maintenance fund being increased? The budget is the only document that tells you what will happen after your purchase.
A short checklist
- Have the annual accounts been adopted by the general meeting? (If not: why not?)
- Is there an audit committee or an accountant's statement?
- Is the reserve fund growing in step with the MJOP?
- How large are the receivables as a percentage of the annual budget?
- Has the operating result been positive for the last three years?
- Does the budget contain an increase or a major project?
Six questions, ten minutes of work, and you know more about the financial health of your future building than most buyers.
Frequently asked questions
Do VvE annual accounts have to be audited by an accountant?
Usually not. For most associations a review by an audit committee of owners is enough. Large associations often do have it done by an administrative office or an accountant.
What if the annual accounts have not been adopted for years?
Then the association is not functioning as it should. Without adopted accounts there is no approved overview of income, expenditure and reserves, and therefore no view of what still needs to happen. Treat this as a serious concern.
How many receivables is too many?
There is no hard limit, but if outstanding contributions run towards five per cent or more of the annual budget, that is a reason to ask what the association is doing about it.
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