Finances

June 5, 2025 Published by Toronto and Area Chapter - By Jan Kundakci

Set Goals Before Budgeting

From the Spring 2025 issue of CCI Toronto Condovoice Magazine.

A simple strategy to improve a condo community’s finances

Effective financial management is the cornerstone of a well-functioning condominium corporation. Yet, many condo boards set out to develop an annual budget—which is their financial roadmap— without a clear understanding of longer-term objectives for the community, leading to a range of potential challenges from reserve fund shortfalls to unexpected special assessments and resident dissatisfaction.

Without a three- to five-year plan that accounts for expenditures such as capital improvements, common area enhancements and regular maintenance—boards may find themselves reacting to immediate needs rather than proactively building for the future. It’s a common challenge, and one that can be difficult to overcome.

As with so many management hurdles, the simplest solution can often be the most effective. In this case, it means defining goals for the condo community before beginning the budget process. That simple step can provide a basic structure that will help align financial planning with the community’s long-term vision. Doing so also enables the corporation to benchmark progress as it moves to achieve desired end results.

One such end goal would be optimizing the corporation’s operating and reserve fund levels.

For example, corporations will commonly incorporate several months of contingency funding into their operating fund as a cushion to cover future (potentially unforeseen) expenses. Condo managers can help their boards conduct a historical review of the corporation’s financial statements and operating fund reserve to better understand income, expenses, assets and liabilities, and set the bar for adequate funding. Industry guidelines recommend maintaining one to three months of budgeted operating expenses in the operating fund. This stems from the fact that a condominium corporation is a non-profit organization that should not accumulate unnecessary operating surpluses, instead collecting money from condo owners as needed with a cushion to mitigate cash flow fluctuation throughout the year.

The difference between a one- and threemonth operating surplus can be significant, so it’s important to understand and define the condo community’s priorities and operational end goals. It’s about asking important questions: What kind of community do homeowners want to build and maintain, and with what amenities? And what degree of funding do we need to achieve that goal? Some key factors to consider: How well does the corporation budget? Is there a great deal of variability in expenses compared to the corporation’s set operating budget? A historical five-year budget review can provide answers. If actual expenditures were logged at less than 5 per cent of the operating budget, for example, maintaining a one-month operating fund surplus of budgeted operating costs may be sufficient. But if the corporation is logging annual budget deficits of more than 5 to 10 per cent, a larger operating fund surplus is likely required. A deep-dive budget analysis can help to mitigate future surpluses and shortfalls.

A key aspect of benchmarking is conducting regular reviews—ideally, on a quarterly basis—to compare actual expenditures to the budget, assessing progress against the condo corporation’s short- and longterm goals. If, for example, the operating fund is depleted in the first quarter or half of the year due to unanticipated expenses, the board may decide to make adjustments and defer some discretionary spending to the second half of the calendar year to meet those budget targets.

By understanding a budgetary starting point and desired end goal—and assuming the condo board and property manager are working together to set realistic expense estimates for the year—it’s easier to accurately determine necessary condo fee increases to align with financial targets. At that point, the board can communicate necessary increases to owners by demonstrating that they understand their expectations and have a realistic idea of what it will cost to operate the community throughout the year.

On the reserve fund front, regular, comprehensive reserve fund studies will provide a detailed analysis of common area components and projected maintenance or enhancement costs, while helping to ensure long-term financial stability. An end goal would be to assess the adequacy of the current reserve fund balance and whether it can cover potential future capital expenses, all to avoid shortfalls or rapid, unexpected fund depletion. Of course, this entire goal-setting process is made easier by maintaining transparent communication with owners. Providing an accurate summary of the proposed budget encourages engagement and helps to build consensus around the community’s future.

There’s no doubt that it can be difficult to organize boards of directors and residents, many of whom are preoccupied with work or daily life. But being deliberate and scheduling pre-budget goal-setting sessions is worth the effort. In fact, it’s a necessary part of the process for condo communities that hope to achieve financial success while avoiding issues such as surprise special assessments.

Jan Kundakci is a partner in the Condominium Practice at Adams + Miles, a midsized accounting firm serving the Greater Toronto Area and beyond. As a leader of our condominium team, Jan works closely with condo boards, property managers and other key stakeholders to manage everything from their audit and reporting requirements to delivering solutions designed to mitigate accounting risk and unlock new financial efficiencies. Jan and our condo practice manage approximately 500 condo audits each year.