Each year the Board is responsible to prepare a budget for the upcoming year. Normally the budget is prepared by select members of the Board (the Treasurer & the President, for example) and then presented to the entire Board of Directors for discussion and approval. It is a responsibility of the Board and does not require approval of the owners. However, many Boards will present the budget at a General Meeting of the owners. During this meeting, owners may ask questions or offer opinions, which could influence the Board’s final budget projections.
The importance of the condominium corporation’s budget is twofold:
- To assess the expenses of managing the day-to-day operations over the next year and to make the contributions to the Reserve Fund (as required by the NB Condominium Property Act and as recommended in your Reserve Fund Study).
- To determine what income is required to offset these expenses. Income is mostly from condominium fees, although rental of guest suites, revenue from estoppel certificates, interest revenue, and rental fees for storage lockers & parking spaces could contribute a small portion in some condominium corporations.
The process to complete the budget involves gathering expense details from your previous years’ financial records and information about probable increases in expenses.
- The first step is to list all actual expenses from the current year, including the contributions made to your Reserve Fund. Since this task is being done before the current year is complete, these expenses will have to be estimated based on the year-to-date totals.
- Next, review any new or renewing contracts. If a contract is up for renewal, you will need to use the new (and probably higher) rate.
- Now, review news articles about possible pending increases in utilities. For example, if hydro is seeking a 3% increase this will need to be included in your calculations. Have you heard news about pending increases in insurance premiums? These increases will need to be considered to ensure you prepare a budget to fully handle the upcoming year’s expenses.
- Now take a look at additional expenses that were not included in the previous year. Perhaps you corporation has decided to include window washing in the budget for the first time. This expense needs to be added to the list of expenses.
- Now you are ready to compile the expenses for the upcoming year. In the next column enter what the projected expense for each item for the next year is expected to be. This is often a guesstimate. But using information you have gathered, you should be able to arrive at a reasonable estimate. Once the estimates are entered, review the increases. Do the increases seem reasonable based on last year’s actual figures and current information you have on potential increases for each item?
- Next, add all of the expenses for a final total. Remember, your Reserve Fund is part of the budget, so you need to consider what contributions will be made to your Reserve Fund, too. Will you be contributing the same as last year or are you planing to increase your contributions? Increases in Reserve Fund contributions often are a result of a Reserve Fund that has not been fully funded as recommended by the Reserve Fund Study or as a result of funds that were recently spent to pay for expenses identified in the Reserve Fund.
It is important to do a thorough assessment of the expenses and potential increases to be sure you have captured all of the costs. Remember, a condominium corporation’s objective is to meet the needs of all of its expenses. But any shortfall in the budget could result in revising the budget mid-year and increasing condominium fees to make up for the shortfall. This is not the best situation and may cause owners to lose confidence in the Board of Directors. It is best to estimate a bit over, to ensure revisions are never needed.
Now, calculate the condominium fees required to meet the needs of the budget. Remember, this covers all expenses, including contributions to the Reserve Fund and your Contingency Fund (if your condominium corporation has one). The Board will refer to the schedule in the condo’s Declaration known as “Common Interests and Common Expenses” to calculate the condo fees for each unit. The Board has a duty to calculate condominium fees, make a motion to accept the fees and record the decision in the Minutes of their Board of Directors’ meeting.
Since each condo corporation has a unique Declaration and By-Law, you will need to refer to your condominium corporation’s documents on specific requirements for the distribution and notification of the budget and condominium fees assessed for each unit. For example, in some condominium corporations the budget must be prepared at least 30 days prior to the end of the fiscal year and it must be distributed to all owners 10 days in advance of the Owners’ General Meeting.
Need more information? Contact Condo-Link Services Incorporated for assistance in preparing your annual budget. We can review your current year-to-date expenses, provide information on proper forecasting of budget items, offer an opinion on probable increases in the industry that could affect your budget and assess what condominium fees are needed to ensure your budget can support the condominium corporation’s annual expenses, as well as contributions to your Reserve Fund.