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Common Strata Budgeting Mistakes & How To Avoid Them

While Strata council members have a duty to manage funds responsibly, a lack of planning can lead to poor budgeting decisions and financial consequences. Even with the best intentions, a council member's mistake can mean higher assessments, underfunded reserves, and missed community enhancements.

Read on to learn more about budgets and tips on how to avoid common Strata budgeting mistakes.

Mistake: Ignoring Delinquencies

Strata fees and assessments provide the monies needed to carry out the community's responsibilities, like maintaining shared spaces, saving for future repairs and improvements, and enforcing community guidelines. While collecting unpaid assessments can be challenging, it shouldn't be ignored. Letting even a couple of delinquencies slide by can disrupt your Strata’s entire budget and lead to potential legal trouble.

To ensure that the Strata Corporation doesn't suffer from cash-flow shortages:

  • Regularly monitor assessments-who's paying, how regularly, and how much.
  • Diligently examine delinquencies, proactively addressing unpaid funds.
  • Ensure you assign a person, such as a community manager or treasurer, who homeowners can contact for payment questions or concerns.
  • Enforce collections and payment policies consistently.

Mistake: Underfunding Contingency Reserves

 

A  Strata CRF – Contingency reserve fund pays for large-scale projects and unexpected expenses. Depending on province requirements and your Strata’s governing documents, your council must retain a certain amount in the community's reserves to provide financial protection to the Strata Corporation.

Underfunded reserves might mean you don't have enough to cover community repairs or necessary replacements, leaving homeowners with a financial burden. The Strata Corporation may also fall behind on projects that can potentially enhance the community.  

The best ways to stay on top of Strata reserves fund are to:

  • Plan regular reserve studies to inspect community assets and shared spaces
  • Use the reserve study results to identify priorities and create a funding plan
  • Consider setting up automatic contributions to your reserve fund
  • Monitor and adjust investments as needed

Mistake: Sitting On and Forgetting About Vendor Contracts

With so much to do during the Strata budget approval process, it's easy to forget about existing vendor contracts. However, these ongoing contracts could be costing your Strata Corporation time and money.

If you don't reassess Strata vendor contracts regularly, you may be paying for products or services you don't use. Plus, the vendor might not be holding up their end of the contract with the quality or frequency of service.

Instead of sitting on vendor contracts, make sure to:

  • Review all contract terms annually

  • Evaluate the community's satisfaction with the vendor

  • Confirm that the services performed are what you're paying for

  • Ask the vendor if you're getting the best rate for their services

  • Shop around for other options if the vendor is falling below expectations

Mistake: No Long-Term Financial Plan

Part of the council’s responsibility is to set the Strata Corporation up for future success. When creating the budget for the coming year, it's important to remember that the decisions you make now can affect the community's long-term financial goals.

Stratas with at least a three-year financial plan can more accurately set assessments, allocate resources, and prepare for upcoming projects. Long-term plans also mean homeowner contributions are steady and calculated, reducing the risk of special assessments or unexpected dips into reserve funds.

If you don't have a long-term financial plan in place, you should:

  • Use a multi-year Strata budget example as a template to help you get started

  • Create a multi-year budget that factors in major projects and future maintenance needs

  • Establish realistic financial goals for your community that future council members can continue

Mistake: Inaccurate Expense and Inflation Forecasting

To create an effective budget Council members must have a firm grip on upcoming mandatory and discretionary expenses—and have a finger on the pulse of the current inflation rate. When the council fails to predict expenses and inflation rates accurately, regular Strata assessments might not be enough to reconcile the budget, and you may be forced to find funds elsewhere.

In some cases, reserve funds can be used to pay these expenses. However, council may need to apply special assessments to cover costs, which can lead to negative feelings or distrust toward Strata leadership.

To avoid inaccurate expense and inflation forecasting, you can:

  • Regularly monitor the inflation rate and evaluate and update the budget to ensure everything is current.

  • Review historical data, like past financial statements, expense reports, and trends, to gauge how inflation impacted your community in the past.

  • Identify spending patterns that can help you reach more accurate estimates.

  • Budget with realistic, inflation-adjusted projections to avoid shortfalls when costs inevitably rise.
  • Consult with your Strata accountant

Mistake: Failing to Communicate the Budget Effectively

Communication and transparency are the foundations of a strong relationship between a  Strata council and Owners.. Because homeowners trust you to manage the community's funds, it's crucial to be open and honest about the budget and how it could affect them.

Failing to share the budget effectively can lead to suspicion that funds are being mismanaged. Owners have the right to know how their money is being used, and council members could face backlash for not making budget details readily available.

Keep homeowners in the loop by:

  • Developing a clear and concise budget report that's easy to understand

  • Creating budget summaries with graphics for people who want a simple breakdown

  • Using multiple communication channels to share the budget and reach as many members as possible
  • Holding informative meetings to discuss the budget in detail

The Beginner's Guide to Strata Budgets

While creating an Strata budget can be an intimidating responsibility, council members can avoid common Strata budgeting mistakes with careful planning, open communication, and an effective use of resources.