Budgeting – Make or Break for Trustees, by Mike Spencer

Budgeting for landlords is very important. Budgeting for body corporate management is essential!

Perhaps the most important aspect of body corporate management that gives problems is improper budgeting. Many owners and trustees do not really understand the purpose of the budget.

It is quite common for trustees to decide on the levy that they would like to have and adjust the budget to match the levy that they want! But the reality is the other way around.

The budget is used to find out what the realistic levy should be when taking into account all the likely costs for the year and a reasonable and realistic amount for long term future expenses (reserve fund to pay for major items such as painting, waterproofing etc).

Budgets should be done in detail. Item by item, month by month. The reason for doing them on a monthly basis is that escalation dates have an effect on the levy required. Municipal charges for example are increased at the beginning of the municipality’s financial year. Each supplier would have its own change date. Some items are only paid once a year (insurance, audit fees) and these can easily be missed if a typical month budget is used. Single column budgets simply will not do!

Budgets must run concurrently with the financial year. So many body corporates run their budget from the AGM, this means that there is a discrepancy between the two and increases are seldom collected for the difference. The AGM should be held within four months of the financial year end but can vary in its date considerably.

What happens if you don’t even hold an AGM - which is not uncommon?

The levy must be confirmed at the AGM but the trustees are responsible to make sure that body corporate is financially sound.

Platinum Global have found that if in the month before the financial year end a Trustees Budget meeting is held to which all owners are invited then the new budget can be set from the beginning of the financial year without owners being upset. It has certainly worked very well with Platinum Global over a number of years and is now being adapted by other managing agents.

Running in conjunction with the Budget is a Budget to Actual. This running schedule shows what was budgeted for expense on each item, what was actually spent and what the running total difference was. This allows the managing agents and the trustees to note any differences (over or under spent) and to take corrective action. It is also a useful tool to pick up problems such as unseen burst underground water pipes.

Budgets and month to actual really help everyone to keep within the budget and is a very simple exercise. The budget to actual should be completed and sent to the Chairman each month, by the managing agents, with copies given to all the Trustees at the regular trustees meeting.

-(Reproduced from The Landlord newsletter by By Mike Spencer Platinum Global, 051 4474711 082 881 4711) -
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