It’s budget season! Are you stressed? The word ‘budget’ can be scary, so thinking about creating next year’s budget is daunting for many strata corporations. We’d like to change that. In fact, we don’t want you to view next year’s budget as a task at all.
Think of your budget as the strata’s road map. It will either lead you to a successful destination or leave the community stranded. If thoroughly thought out and strategically planned, it should take the community to a fiscally sound place, without any surprise detours along the way. The best outcome to a strategically planned budget is that it can maintain, and even increase, property values in your community. So in order for you to get the most from this budgeting season, we put together a series of articles and information to guide you and your strata through the process.
If your strata does not take budgeting season seriously, it puts them and the entire community at risk. Let’s take a look at how poor budgeting can affect your owners, the strata, management team and even vendors.
||The Strata Council
- Forced to pay more money
- Reduction in services
- Decreases in property values
- Concern for the strata
- Forced to select which services to reduce
- Extra burden of cash management
- Unable to fulfill fiduciary duty
- Forced to use funds in unanticipated ways
- Makes dealing with vendors uncomfortable
- More cash management
- Administrative burden
- Additional workload in the form of meetings, notices and communication
- Added stress
- Checks could be delayed
- Hurts relationship
- Loss of trust
- Level of services
Unfortunately, these can all be a reality if the strata isn’t fully prepared for their budget working sessions.
Protect your community by keeping the following in mind when beginning your budgeting process.
1. Look beyond the current year.
While the strata is technically developing an annual budget, the budgeting process should drive the strata to think long-term and consider how scheduled expenditures can actually help the owners save money down the road. Consider the next 1-, 3- and 5-years and anticipate upcoming and/or potential projects that cannot be funded from your reserves. Write these down!
2. The owners comes first.
One of overall goals of the strata corporation should be to increase property values and enhance the quality of life for its residents. In order to do this, steer clear from politics and avoid being forced into making decisions that don’t universally benefit everyone in the strata.
3. Don’t focus on set increases.
A problematic approach is to simply factor in a standard percentage increase across every category. Sure, include an estimated 3-4 percent increase for inflation, but only in addition to increases based on historical data, input from your property management company and set increases spelled out within service contracts.
4. Consider seasonal fluctuations.
Maintain a minimum of one month of assessments in your operating account at all times. Our seasonal changes make for higher expenditures in some months and lower in others, so don’t underestimate these fluctuations.
5. Delinquencies are a reality.
Make sure your strata has a collection policy that is clearly defined, regularly communicated and uniformly enforced. If your strata has a high volume of delinquencies, it might be time to consider some of those expected delinquencies as bad debt.
Creating your strata’s road map isn’t always going to be easy, but if you approach it strategically, you can minimize the risk of being underfunded, lessen the burden of future budget planning sessions and ultimately keep property values elevated. Learn more about how a professional property management firm can help your community cruise comfortably toward financial success. Contact FirstService Residential, the leading community management company in British Columbia. Where will your strata’s financial road map lead you?