Seven Tips for Preparing an Effective Annual Budget
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The word “budget” can strike fear in the heart of the most courageous board member. But when you’re planning for the financial strength of your condominium corporation, there are definite ways to reduce stress and maximize your results. After all, it’s your fiduciary responsibility to make sure your corporation is funded in a way that ensures a high quality of life for your residents.
So when it’s budget-time, here are a few areas to focus on.
1. Think beyond the coming year.
Don’t let the term “annual budget” fool you. Your condo corporation should have a plan for one year, three years and five years. You don’t want to be surprised by projects that can’t be funded from your current reserves, so make sure your plan is good for the long-term. One place to focus on is your current vendor list, and whether or not you can predict an increase in their fees. Talk to a great property management company – they’ll have the power to negotiate better vendor rates for you.
2. Get your balance right.
A good rule of thumb is to have a minimum operating fund equal to a month of maintenance. Not quite there? Then you may need to institute an additional assessment to bridge the way. Another pitfall is the contingency line item – you’ll want to avoid this one at all costs, since it tends to create problems later on. If your numbers still seem thin, be sure you’re considering every possible revenue source. You might be overlooking funds that could help.
3. Don’t go on autopilot.
An easy way to approach your budget is to annualize your expenditures from the previous year. Unfortunately, although this may be a simple approach, it’s also a mistake. Take the time to go through every expense individually and get real numbers for the coming year or years rather than relying on what’s happened in the past.
4. Handle arrears.
It’s a challenge the condominium board faces again and again: owners who fall behind on their dues. So when you’re making your budget, categorize unexpected delinquencies as bad debt expenses. Your corporation may approach townhome or condominium management with a highly aggressive collection policy, which will help you keep those bad debts in check. You won’t, however, be able to eliminate the problem of delinquent owners completely. Late fees can help, just make sure you charge them consistently.
5. Be brave.
Budgeting means hard choices. Programs may need to be modified or special assessments might need to be levied in order to get your budget balanced. If you’re working with a property manager, they will have provided you with a list of recommendations along with your audited financial statements. Follow these recommendations, and don’t be afraid to put a line item in the budget that accounts for accumulated deficits and shortfalls.
6. How you do it matters.
Process has a big role to play in the creation of your budget. You’ll need to make sure the board approves all reserve expenditures. And, this is a good time to review the internal controls you have in place so you can continue to ensure funds aren’t misappropriated or wasted.
7. Remember what you’re here for.
A budget isn’t just numbers on paper. It’s a roadmap for how residents will live. As such, you should consider the real-life implications of every decision you make. This could give rise to some difficult discussions among board members. Just try to avoid politics and remember your shared purpose of maximizing quality of life and property values for the condominium corporation.
The way you budget defines the way your residents will live. Get it right and you’ll go a long way toward ensuring a happy, vibrant community. For more insights and best practices, contact FirstService Residential, Alberta’s leader in condominium management.