As a trustee of a body corporate, you know that your Scheme is required to have a budget for each financial year. And with many body corporates having reached the end of the 2019 fiscal calendar (this date may vary from Scheme to Scheme) it is time to start budgeting for the next twelve-month period.
Regardless of the month in which your Scheme’s financial year comes to an end, your body corporate must start preparations for an administrative and reserve budget to be submitted at your annual general meeting (AGM).
(As of 2016, body corporates are now required (as per the Sectional Title Schemes Management Act) to submit two separate budgets. )
1. The Administrative Budget (original): provisions for the day-to-day operating and maintenance cost of the Scheme for the year.
2. The Reserve Budget: provisions for a 10-year maintenance plan.
Body Corporate Funds
As mentioned above, a body corporate is obligated to maintain two funds, namely the administrative and reserve fund.
The administrative fund must be established to cover the annual operating costs of a Scheme. These costs include; maintenance and repair; management and administration; rates and taxes; insurance, and discharge of any duty.
The reserve fund must be established to contain enough funds to cover the costs of all future maintenance, repair and capital replacement costs for all common property that may arise.
How Does PropDirect Assist Clients With Budgeting and Financial Planning?
According to Johann Hunter, Chartered Accountant and Financial Manager for PropDirect; “We make use of the latest cloud accounting technologies to ensure that our body corporates’ financial systems are managed in an efficient, transparent and orderly way.
Supporting vouchers for expenses are all stored on the accounting system itself, providing ease of reference to trustees and auditors to vouch for any items on the financial reports. This system provides us with detailed information that we use to assist our body corporates with the preparation of their annual budgets.
A proposed annual budget is compiled by us, which is then discussed with and approved by the trustees. Final approval must always be given by the owners at the AGM.”
Our Advice on Budgeting For Your Next Financial Year
“Body Corporate budgets are drawn up from the expenses side and then allocated proportionately to all the owners in the Scheme, to arrive at a monthly levy amount per scheme member.
Therefore do not fall in the trap of not making ample provision in your annual budget for all possible expenses in an effort to limit an increase in the levies. This could result in a shortfall which can then only be funded by a special levy, something which should be avoided as this comes unexpectantly to owners and can create a perception that the body corporate’s finances are not properly managed.
Always make sure that you think of all the expenses that might be necessary in a year. Also, make sure that ample provision is made to comply with the Sectional Title Schemes Management Act Regulations relating to the Reserve Fund. As already mentioned, we are here to assist body corporates in compiling complete, accurate and compliant budgets.”
If you would like to budget for your body corporate’s next financial year successfully, get in touch with our team of dedicated professionals today.