Required Contents and Components of an Annual Operating Budget
What is an Annual Operating Budget?
An annual operating budget is a financial plan outlining a condominium corporation’s projected income and expenses for a fiscal year. It ensures that day-to-day operations and maintenance costs are covered.
Key Components of an Operating Budget
Revenue – Sources of income, including:
Monthly condominium fees from unit owners.
Interest earned on operating accounts.
Fees from fines or penalties.
Operating Expenses – Day-to-day costs required to manage the condominium, including:
Utilities (electricity, water, heating).
Condominium management fees.
Insurance premiums.
Routine maintenance and janitorial services.
Reserve Fund Contributions – A portion of the budget must be allocated to the reserve fund for long-term repairs and replacements.
Contingency Funds – Unexpected expenses that may arise, such as emergency repairs.
Surplus or Deficit Calculation – The difference between revenue and expenses, ensuring the corporation operates within its means.
Legislative Requirement
According to the Condominium Property Act, a condominium corporation must provide a copy of the proposed budget to unit owners at least 30 days before the start of the fiscal year and 14 days before the annual general meeting (AGM).
How an Operating Budget Aligns with Condominium Expenses
Why the Operating Budget Matters
Financial Planning – Ensures the corporation can cover expected costs.
Legal Compliance – The CPA requires corporations to prepare and disclose an annual budget.
Owner Transparency – Unit owners must be informed of their monthly contributions and how funds are allocated.
Sustainability – Helps the corporation avoid financial shortfalls and special assessments.
How the Operating Budget Covers Expenses
Fixed Expenses: These remain constant, such as insurance premiums and management fees.
Variable Expenses: These fluctuate, such as utility costs and maintenance repairs.
Reserve Fund Contributions: The budget must allocate a portion of revenue for future capital repairs.
Common Budgeting Mistakes & Solutions
Mistake | Solution |
Underestimating maintenance costs | Review past financial reports and account for inflation. |
Not allocating enough to the reserve fund | Follow the latest reserve fund study recommendations. |
Delayed or incorrect financial disclosures | Ensure documents are distributed to owners 14 days before the AGM. |
Step-by-Step Process for Preparing an Annual Budget
Step 1: Review Previous Budgets & Financial Reports
Examine past financial statements and identify spending trends.
Check for surplus or deficit carryovers from previous years.
Step 2: Estimate Revenue
Calculate total condominium contributions expected from unit owners.
Include interest earnings or other income sources.
Step 3: Identify and Estimate Expenses
Separate fixed (e.g., insurance) and variable (e.g., utilities) costs.
Consider any anticipated increases in service contracts or maintenance costs.
Step 4: Allocate Reserve Fund Contributions
Review the most recent reserve fund study to determine the required allocation.
Ensure compliance with the CPA’s reserve fund funding obligations.
Step 5: Balance the Budget
Ensure revenue covers all anticipated expenses and reserve fund contributions.
If needed, adjust condominium fees to avoid financial shortfalls.
Step 6: Board Review & Approval
The board reviews and approves the proposed budget.
The budget must be sent to unit owners at least 30 days before the AGM.
Example Scenario: Budgeting for Snow Removal
The previous year’s snow removal costs were $40,000.
A review of past invoices suggests an increase to $50,000 due to higher contractor rates.
The new budget must adjust expenses accordingly to prevent a deficit.
