Body Corporate budgeting by Mike Spencer

Whether we like it or not running a body corporate is like running a business.

Running a company needs proper planning and budgeting. To run a Body Corporate properly Trustees need to plan what they are going to do during the forthcoming year (the year runs from the beginning to the end of the new financial year). What would they like to do (painting, major repairs, waterproofing etc) and do the have enough money in the reserve fund to be able to tackle these projects or will a special levy be necessary?

In order to finance the normal running of the building and pay for any special projects the Trustees need to budget carefully for each and every expense item on a month-to-month basis.
Why on a month-to-month basis? The reason is that expenses do not stay the same right through the year. For instance municipal charges are usually increased in line with the local authorities’ budget – July for Bloemfontein for instance. Salaries need to allow for Xmas bonuses and relief workers.

Most important is to have a realistic reserve fund allowance (usually expressed as so much per unit per month). Ideally Trustees should get a rough quotation for undertaking the major repairs and maintenance which will have to be done in the future (after the current year’s budget) but this is often difficult because creating quotations cost a lot of time and effort by contractors and they are very reluctant to provide such quotations when they know that they are not going to be accepted. Trustees should estimate the current cost of such repairs and when they are likely to have to be done. By dividing the estimated costs by the number of years until they need to be done each expense will relate back to an amount that needs to be collected in the current year’s reserve. It is a good idea to actually have separately estimated amounts for each item as this makes it more clear to everyone why the reserve needs to be provided. Each item would be budgeted as 1/12th of the amount each month.

The simplest and easiest way is to use a spreadsheet to calculate your levies. Have a column for each month of the year and a line for each expense. Group expenses by type such as municipal expenses (rates and taxes, water, electricity), maintenance items (maintenance, security, wages etc), administration costs, (managing agent’s fees, bank charges, newsletter costs, audit fees). Each line should automatically provide an annual total, and each group should have a group total as a check.

The total of all the expenses will give you the total annual levy. Divide this by 12 to give the monthly levy that must be collected to provide the running expenses for the Body Corporate.

This monthly amount will then shared by each owner based on their participation quota. The new levy should be collected from the start of the financial year. It is a good idea for all owners to be invited to the Trustees budget meeting so that they fully understand how the levy was calculated and to assist in accepting each budgeted figure. Practice has shown that far fewer complaints about high levies are received if all owners have an opportunity to be involved in the setting of levies.

Most importantly the levy should never be changed just because the levy “seems too high” or “the increase is above the inflation rate”. Budgeting is a way to ensure that the Body Corporate is well financed and has money to do the things it needs to do, when it needs to do them, without, as far as possible, having to resort to Special Levies.
Loading comments
More news articles
Guidelines to securing a home loan
29 May 2018
Many young South Africans are working hard to achieve their dream of purchasing their first home. However, the process can be challenging due to the daunting application process, which can take up to 2 years and is often enough to discourage prospective buyers.
read more
Things you should consider before upgrading to a new home
23 Apr 2018
The thing about the property ladder is that at some point in our lives we all have reason to want to climb a rung or two higher. Sometimes, it’s because we’ve outgrown our previous dream home, or because we want to be in a better neighbourhood that’s closer to work or to schools. Sometimes it’s because our circumstances have changed, and we’re taking care of elderly parents or relatives. Sometimes, it’s just because we want a property that reflects the financial status our hard work has won.
read more