How To Prepare A Budget


Preparation of a budget is one of the most important tasks a committee must undertake in their year to year operation. The following are general principles which strata communities may consider when preparing their budgets.

The previous year end accounts are reviewed prior to commencing preparation of the following year’s budget, to ensure each line item accurately reflects the expenditure therein. It is important to reflect on the actual results of the previous year as a starting point to budget for the following year. Whilst previous expenditure is not necessarily a clear indicator of future expense, there may be patterns that are relevant. Further, it may be necessary to review the second year prior for any patterns that may take longer than annually to appear.

New Bodies Corporate or Owners Corporations may have little historical data to analyse. In this circumstance, a particularly conservative approach should be considered until expense patterns become clear. These patterns could take around 3-4 years to emerge.

Once an understanding of the historical patterns is established, the next step is to project these forward for the next 12 months. Each expense line item (for example, Pest Control) should be individually examined using both the historical data and information available about likely future trends. The Building Management team (if one exists) and the Committee are a critical source of information when determining the future trends, owing to their detailed knowledge of the common property and associated maintenance requirements. Trends need to take into account expenses which could be described as “once-off” items, and also changes in requirements. For example:

  • Increase in service frequency (e.g. more frequent garden maintenance),
  • Increase in scopes of work (e.g. more comprehensive garden maintenance),
  • New expenses

Once the expenses have been determined, the income (levies) can be identified.

For Administrative Funds, levies should be set at a point that supports the expenditure. The impact of any carried forward surplus (or deficit) needs to be analysed at this point. For example, if there is a carried forward deficit balance, the levies for the budget year may need to be increased to reduce the deficit. Where levies need to increase, it may be possible to do so over more than one year. This can soften the impact on owners, whilst simultaneously being financially prudent.

For Sinking Funds (known Maintenance Funds in Victoria and New South Wales), levies should be set at a point which takes into account the balance suggested in the Sinking Fund Forecast (SFF), and any expenses which are expected but not included (or anticipated) in the SFF.

The above information is general and basic advice on how to approach the formation of a budget. Each Body Corporate and Owners Corporation requires specific analysis of their past and future financial requirements when preparing budgets. If you require assistance or advice on preparation of a detailed budget for your strata scheme, talk to SSKB. Our experienced Community Managers provide strategies to deliver positive results to your body corporate.



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Who’s Responsible For Pest Control In An Owners Corporation
Running A Business in a Body Corporate

Recent Comments

2 Comments

John Aubrey On April 20, 2017 | Reply

I have been informed that a levee for Admin or Sinking funds can only be increased or decreased by 10%.
If this is correct, Normally at an AGM the first instalment has already been raised. Leaving the 2nd levee to
be adjusted. if we wanted to adjust the levee by 10%, is it only the 2nd levee that can be adjusted by 10%
or is the total years levee that can be adjusted by 10% which then would come off the remaining 2nd levee. for more info: If sinking fund levies 2015’16 was $270 being 1st $150 2nd $120, budget set for 1st Levee 2016’17 $135 half of Last years $270. the 2nd levee is $421 due to due to a 10 year forecast.
can this be done? when the sinking fund is financial with a strong balance.

    SSKB On May 18, 2017 | Reply

    Legislation allows that the lot owners may adjust the levies, at the AGM, by a maximum of 10%, either up or down.

    Making adjustments to the levies can only be done by those attending the AGM, since a vote from the floor must be made.

    When it comes time to vote on the motion to accept the levies a lot owner may raise a motion to adjust the levies. That motion is then voted on by those at the meeting and, if passed, effectively makes the postal votes cast on the unchanged motion invalid.

    The 10% increase or decrease is applied to the total amount of money that is proposed to be collected from the Owners for either the Sinking Fund or the Administration Fund. As you have stated above, normally the first installed has already been raised, and therefore it is the second issue that will see the reduction.

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