How to Prepare for Upcoming Budgets
It’s that time of year again! For the many corporations with December 31st year-ends, it’s time to work on your corporation’s budget for the next fiscal year. This can be a very daunting endeavor for many board members, particularly in the current economic climate.
It’s that time of year again! For the many corporations with December 31st year-ends, it’s time to work on your corporation’s budget for the next fiscal year. This can be a very daunting endeavor for many board members, particularly in the current economic climate. Most board members are also unit owners, and they must face the struggle to keep the monthly common element fees low for themselves and the friends and neighbours in their communities while the costs of operating their condominium are increasing.
A budget is a projection of the board’s plan for the year to come and how they expect the monthly fees to be used. It is also a way to determining what the fees should be to adequately finance the operations.
The first step is to obtain as much information as you can from the corporation’s suppliers to ensure that the forecasted figures are as accurate as possible. The corporation may have fixed monthly costs for contracts such as landscaping, fire monitoring, janitorial and security. The contracts should be double checked to ensure that any price increases are reflected. Contacting the suppliers themselves to determine what their fees will be for the next 12 months is advised. Annual suppliers such as auditors, insurance appraisers and window washers should also be contacted as their fees have likely increased as well.
It is becoming well known in the industry that insurance costs have been increasing dramatically. Finding out what your upcoming insurance costs will be is recommended to ensure you budget appropriately.
Utilities can be tricky as the costs are generally based on consumption. Over the last few years, we have seen huge fluctuations in costs as unit owners have gone from working from home to transitioning back into their offices. A general rule is that you should always budget more than what was spent in the current year. COVID trends aside, budgeting for lower utility costs can be a recipe for disaster if the board has not taken any specific steps for conservation. A pro tip would be to ask your auditor for a five-year trial balance in order to visualize the trends in utilities costs.
The board should have an idea of what kind of projects or maintenance items will be completed in the upcoming year. This could be things like mulching that is completed every other year or other planned landscaping improvements. It could also include new additions to the common elements such as security cameras, gazebos, and park benches as these items are not eligible to be paid for through the reserve. Section 97 of the Condominium Act should be reviewed if the corporation is considering making changes, additions, or alterations to the common elements.
Surplus or deficit?
One of the most often overlooked aspects of budget planning is assessing whether a surplus, deficit or breakeven budget is needed. A surplus budget means that the corporation takes in more money than it plans to spend. A deficit budget means that the corporation spends more money than it collects, and a breakeven budget means you plan to spend just as much as what it taken into income. Deciding which one the corporation needs can be as easy as looking at the corporation’s general fund balance. If the corporation is going to end the year in a deficit, then the board will need to budget efficiently, perhaps with a surplus budget, to bring the balance back into the black. The corporation cannot function in a deficit as cash flow issues will make it difficult to pay suppliers. The corporation may also want to budget for a surplus to build up their general fund balance, either to increase their buffer against unexpected expenses and emergencies or to plan for a special project.
Alternatively, if the corporation has a large surplus, then a deficit budget could be an option to minimize the increase in monthly fees.
While it can be difficult to predict the future, the key is to take out some of the guesswork. Reaching out to auditors, suppliers and other professionals can be a great start to creating a realistic and manageable budget.
Shalon Seebach, BBS, LCCI
Manager, RLB LLP
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