As a homeowner, you want to live in a place that accentuates your style – from a beautiful sense of arrival or exquisitely decorated building lobby, complete with freshly pruned trees and lush landscaping – but unless your strata council has strategically planned out your strata’s budget, you can forget all of that. The budgeting process is a valuable opportunity to explore the current financial condition of your strata and ensure its financial stability for the future. Successful strata management hinges on this financial tool for both short-term and long-term planning.
A strata’s operating budget consists of estimated income and expenses, plus contributions to reserve funds for one year. Advanced preparation is critical to its success as a valuable financial tool. Create the framework for your budget with these tips.
a. Goals and objectives.
The very first step that many strata corporations fail to complete is to define the purpose of the owners and determine its core values. Keep in mind that you are defining the purpose of the strata, not the strata council itself. The purpose and core values can then be passed on from one council member to the next and so on, making it easier for new volunteers to jump in and provide value. Once these objectives have been established, they should be used to create a solid Strategic Plan.
In order to begin, the council should have a solid understanding of their strata’s financial condition; keep in mind a good strata manager will be able to assist the council with questions. Then, acquire a clear understanding of the needs and priorities. Identify and create the strata’s full list of projects and try to prioritize into 1-, 3- and 5-year needs. Determine which projects and services must be outsourced vs. those that can be absorbed by a volunteer committee, on-site staff (if applicable) and finally estimate the financial impact of each item.
b. Estimated common element expenses and income.
Your strata management team should review general ledgers, historical data, inflationary increases, bids for projects, and speak to any staff (if necessary). This information will be incorporated into the draft budget provided to the owners by your management company.
c. Depreciation Report requirements.
The depreciation report is a capital planning tool – it can be impacted by the regular maintenance decided by the strata council. The council, along with your strata manager will need to determine what is necessary to contribute to reserves. Depreciation Reports can be reconciled annually or when the study is updated, which is every three years as a best practice or as required by Strata Property Act.
Each strata may have an existing timeline to complete the budgeting process, but for those who do not have a defined a timeline, consider the following:
90 days before fiscal year - Strategic Plan completed strata council
60 days before fiscal year - Draft Budget completed by strata manager
30 days before fiscal year - Homeowners must be notified of any change to member assessments
It’s time to reflect.
Your annual budget is more than good practice – it’s an opportunity to re-evaluate your strata’s finances and ensure your community is on the right track. Keep your budget realistic to meet the community’s daily obligations and still be prepared for the unexpected. Analyze current and past expenses for all maintenance and repairs; ask yourself if the current maintenance plan is adequate to prevent costly infrastructure failure, if not, gradually collect funds for periodic large expenditures to avoid the dreaded special assessment.
Your strata manager should take the opportunity to reflect on your current vendors and ask the following three questions:
1.) Are the terms and fees competitive?
2.) Are they providing reliable quality service?
3.) Can they bundle in any additional services?
Depending on the answers, think about whether it’s time to shop for new vendors and/or renegotiate more favorable fees and terms. With a vast network of thousands of vendors, FirstService Residential is uniquely able to find the most qualified vendors and negotiate the best rates and terms for our clients. Our purchasing power can help boards optimize their operating budget while providing access to the most skilled and reputable vendors in the local marketplace.
As the strata council, you can play a pivotal role in keeping your community on the forefront of issues affecting your property – and that’s a key part of keeping your strata financially healthy.