Thursday, February 28, 2008

Managing your finances: pretend you're a corporation

I work in the marketing department of a large Canadian corporation. In my day-to-day job, I'm constantly dealing with different departments and business units and their individual business objectives and budgetary constraints. However, the scale of it all makes the actual dollars and cents seem very abstract; it's often hard to look at a multi-million dollar advertising budget and see it in terms of real money.

A couple of weeks ago, Ms. Loonie and I attended our condominium corporation's annual general meeting. We live in a building with about 100 units, and approximately 30 units were represented at the meeting. This was my first time attending such an event, and it was very interesting. Somehow, the smaller scale of this corporation's financial picture made it much more tangible, and I was really geeked out to go over the financial report. There are a lot of things from the way a small corporation like a condominium operates, that you can apply to your own finances:
  • Reserve Fund - A big part of our common element assessment every month goes toward building the condominium reserve fund. This is the fund that is used to cover any "out-of-budget" expenses. Need to replace your boiler? Use the reserve fund. Need to fix leaks in the parking structure? Use the reserve fund. It's essentially the corporation's Emergency Fund, just on a much larger scale. I was interested to learn that the Condominium Act requires that a reserve fund be held in an interest-bearing savings account, just like your personal Emergency Fund should be.

  • Operating Budget - Much of the rest of the common element fees help to cover things like keeping the lights on, paying the maintenance staff, and heating the building. These are all planned expenses, and the corporation takes pains to stick to this budget in order to maintain a positive cash flow. It sounds simple, but corporations need to do this just as much as individuals need to stick to their own budgets.

  • Reserve Fund Study - This was the item I found most fascinating. The condominium commissions a study on a periodic basis to determine the general status of its assets and infrastructure. A team of engineers conducts a very thorough review of the building, and determines the amount that the corporation should set aside to pay to fix or replace elements when they eventually fail. This really makes the reserve fund a combination of the Emergency Fund and Freedom Account concepts; it's where we keep our "rainy day" emergency cushion, but it's also where we save up for periodic major expenses, like re-paving the driveway every 10 years, or replacing the heating system every 20 years.
It's not exactly a new idea to think of yourself as a corporation; lots of bloggers have written about how we're all essentially self-employed (even if you work "for the man", you're essentially a service provider, and your employer is your only client). It helps, however, to shake up your way of thinking about your finances. I know this meeting was an eye-opener for me, and I think I learned a lot.


Reserve Fund Study said...

The act will require condominium corporations with more than 10 units to have or complete a reserve fund study. This study will define the reserve fund required for that corporation, and help determine the budget for current and future maintenance or repairs to the buildings. As well, these corporations must submit annual financial statements to the director of condominiums at Service New Brunswick, ensuring that every condominium owner is kept appraised of its corporation’s financial status.

Reserve Fund Study

Carlene Schnitzer said...

That makes sense. You'd be less inclined to spend on unnecessary things when you have that kind of mindset. If you think like a corporation or business owner, you can focus on improving your funds and resources.