Body corporate budgets should be carefully assessed for 2016

With most sectional title schemes nearing the end of their financial year – many run from March 1 to the last day of February – comes the need to go through budgets very carefully for the year ahead.

It’s also important to set the increase in levies with thought given to any special projects or maintenance in the scheme that might become necessary, says Mandi Hanekom, operations manager for the sectional title finance company Propell.

Another aspect of budgeting for the coming year should be to assess how many of the scheme’s owners pay their levies on time and what percentage is in arrears, and to make the necessary contingency arrangements to help compensate for the non-payers.

“When budgeting, trustees sometimes make the mistake of assuming that all the owners pay their levies in full and on time, where they should perhaps add about 6 percent to the annual levy budget to compensate for non-payers,” says Hanekom.

“Many are predicting that this year might be a tough one for consumers, with food costs rising as well as interest rates, and these rising costs might have a knock-on affect on levy payments – as salaries are mostly static and will not be able to increase in line with rising costs of living.”

In establishing a budget for the year, she says trustees should go through the financials of the previous three years as well as the maintenance carried out on the buildings. This will help them plan for upcoming maintenance expenses and track the income versus expenditure estimated for the year.

“When determining what the income and expenditure of the sectional title scheme might be, it’s advisable to treat the body corporate as one would a business. Consider what the municipal bills could come to if they increased significantly at some point during the year – it is expected, for example, that electricity and water costs will increase – and what that would do to the cash flow. A budget should also differentiate between normal levy income, special levy income and other sources, if any.

“Expenses can mount up quickly in sectional title schemes and the better prepared the body corporate is in breaking down the financial planning as much as possible, the better the trustees will be at managing the financial health of the scheme,” says Hanekom.

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