The Dangers of carrying over your Strata Operating Fund Surplus

It’s budget planning season, and with only two months to go until year end, your strata corporation is on course to run a small $5000 surplus!

The temptation to use your prior year’s surplus to keep your strata fees low for next year is very, very tempting! If you do, you can essentially keep your strata fees the same as the year prior, rather than taking a 5% increase due to inflation from your service contracts and some needed building maintenance.

You know, as Strata Council Treasurer, that times have been tight for a lot of the owners in your building. With record high grocery store prices, and increased mortgage rates, owners in your building are feeling the pinch, and would like nothing more than for you to keep strata fees the same for this next year! This would make you and Council very popular, and help to keep complaints at a bare minimum.

This operating fund surplus situation is a very real life scenario that we see play out weekly in our business. It’s a choice that many Strata Councils face on a regular basis.

The warning here is that carrying over your strata fee surplus causes risks for a number of reasons!

1. If you’re planning your budget prior to your year end financials being finalized, which generally you will be in order to meet the SPA requirements of holding your AGM on time, things can change! That $5k surplus can turn into a $10k deficit 3 months later when a large City of Vancouver invoice arrives and wasn’t accrued for! Just because a surplus is there today, doesn’t mean that you can or should bank on it! In this scenario, the strata could end up in a massive cash flow crunch, causing vendor invoice payment delays amongst other issues.
2. Using your surplus to offset strata fees is delaying the inevitable, and creating a false sense of security. The reality is that costs are going up every year, and you have to keep pace with these rising costs in your operating budgeting. Putting on a blindfold and pretending that they aren’t is only going to cause problems long term.

Transfer your operating fund surplus to your CRF

So what is the best, and most conservative approach in this situation? Our recommendation is to take your surplus, and move it over to your CRF. It can NEVER hurt to beef up your CRF, and it can never hurt to put money away for a rainy day.

Looking for some budgeting advice? Please don’t hesitate to reach out to us here today!