Budgets are the foundation of a properly run condo corporation. Reviewing the current budget and formulating one for the upcoming year is an annual responsibility of the condo board.
It is not uncommon for board members who vote on a budget to lack the financial literacy to understand, manage and control budgets.
For many condo corporations the process begins with the condominium manager who prepares a draft budget for review. This draft budget would be reviewed by the treasurer, finance committee and the board. Changes are incorporated into a proposed budget that is presented to owners.
Budget preparation begins with a review of the current budget. Anticipated changes and various predictions are incorporated. This may include changes in salaries and energy costs. Known or anticipated expenses and repairs are factored in. Where specific costly repairs or maintenance is anticipated in a future year, some of the necessary funds may be incorporated into the budget. Weather predictions are important as they impact on energy costs for heating and cooling, and repairs.
When a proposed budget is presented to owners, input may result in additional fine tuning.
Common Budgeting Mistakes
Boards may choose to ignore professional advice and projections as a way to reduce condo fees. They may underestimate future costs or inflation by incorporating their own estimations. This makes them look good while creating financial challenges for future boards and owners.
Over-reliance on Condominium Manager
Lack of cost, cash and financial controls provide a less-experienced condominium manager with too much control. A board should be monitoring larger bills and contracts. They should understand the modelling used by the condominium manager when preparing a draft budget.
Condo fraud is often the result of condo boards relying too much on management and inadequate monitoring.
Lack of Owner and Board Input
Inadequate owner participation in condo management can be reflected in the budgeting process.
A finance committee requires participation of condo owners who are financially savvy, prepared to dedicate sufficient time to budget review on an annual basis and the willingness to provide specific written recommendations for a board to consider. A condo board requires financially savvy individuals who can do the same while considering a broader perspective than that of a finance committee.