As a homeowner, you want to live in a community that accentuates your style. However, whether that means having a beautiful entrance monument complete with freshly pruned trees and lush landscaping or an exquisitely decorated building lobby, you can forget all that unless your condominium board has strategically planned out your community’s budget.
The annual budgeting process offers an opportunity for your board to explore your condominium’s current financial condition and to ensure your community’s financial stability for the future. Successful condominium management hinges on a well thought out budget for both short-term and long-term planning.
To serve its purpose, your operational budget needs to incorporate estimated income and expenses, as well as contributions to your reserve fund for one year. Advanced preparation is critical to making your budget a valuable financial tool for the success of your community.
First, create the framework for your budget with GERT.
GERT is an acronym that stands for the four important aspects of developing a budget:
• Goals and objectives
Before doing anything else, you need to define the purpose of the corporation and determine its core values. This is a step that many boards fail to do. Keep in mind that you are defining the purpose of the community as a whole, not of the board or individual homeowners. The purpose and core values can then be shared by all board members, 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. This requires you to determine the financial condition of your corporation and then ascertain the needs and priorities of your members. Identify and create the condominium’s full list of projects, and prioritize them into one-, three- and five-year needs. Determine which projects and services must be outsourced, which can be absorbed by a volunteer committee or by on-site staff (if applicable) and estimate the financial impact of each item.
• Estimated common element expenses and income
Your condominium management team should review your general ledgers, historical data, inflationary increases and bids for projects and should speak to any staff (if necessary). This information will be incorporated into the draft budget provided to the board by your management company.
• Reserve study requirements
Your condominium manager should also review your reserve study to determine necessary reserve contributions. Reserve studies can be reconciled annually or when the study is updated, which is every three years as a best practice unless subject to specific state or provincial requirements.
Sticking to a timeline will keep you on track for completing your budget your budget on time. Here is a recommended plan, unless your corporation is required by law to follow a different timeline:
90 days before fiscal year - Strategic Plan completed by board
60 days before fiscal year - Draft Budget completed by manager
30 days before fiscal year - Homeowners must be notified of any change to condominium fees
Use your budgeting process as a time to reflect.
Your annual budget is more than good practice. It’s an opportunity to re-evaluate your condominium’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. And finally, consider creating a deferred maintenance fund to gradually collect funds for periodic large expenditures to avoid the dreaded special assessment.
Take the opportunity to reflect on your current vendors. Ask yourself the following three questions:
1. Are their 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 network of thousands of vendors, FirstService Residential is uniquely able to find the most qualified vendors and negotiate the best rates and terms for the communities we manage. Our purchasing power can help your condominium corporation optimize its operating budget while providing you with access to the most skilled and reputable vendors in the local marketplace.
As a board member, you can play a pivotal role in keeping your community at the forefront of issues affecting condominium corporations – and that’s a key part of keeping your community financially healthy.
Find out how a professional property management firm can help you craft a budget that serves as a valuable tool for your community’s future. Contact FirstService Residential
, the leading community management company in Ontario.