Top tips on strata budgeting
If you own in a Strata property, you are required to pay Body Corporate contributions, commonly known as levies. Levies cover many items such as the costs of maintaining common areas, administrative costs for items such as audits and tax, contractual fees and sinking fund contributions for capital expenditure. The budgets are estimates of anticipated expenditure by the Body Corporate. Preparation of a budget is one of the most important tasks a Committee must undertake during the Body Corporate’s financial year. Below we have shared some general information on strata budgeting and some top tips:
- Break down the costs
This may sound obvious; however, it is an important step when setting budgets. There is no better way to prepare your budgets than to split your expenses into individual costs. A good place to start is by determining how much your administrative and sinking fund levies are each year based on your previous expenditure and Sinking Fund Forecast. From there you can add any additional expenditure that may be required for the scheme.
- Work with your Community Manager and Building Manager
Many lot owners are new to the world of Strata. It may be the first scheme you have owned in or you may be unfamiliar with the regulations and responsibilities required. Many Bodies Corporate decide to invest in engaging an experienced Community Manager to assist in the running of their scheme.Community Managers can be particularly useful when strata budgeting. They have experience in preparing and setting budgets and will have the knowledge to how your scheme runs and any anticipated expenditure for the scheme.
- Project forward the next 12 months
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
- Identify Income Levies
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 as 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.
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 strata budgeting, talk to SSKB. Our experienced Community Managers provide strategies to deliver positive results to your Body Corporate.
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