Budgeting tips to navigate a financial crisis – part II

An accurate and comprehensive annual budget is the secret to effectively managing your community scheme’s finances. Tough financial times may impact a community scheme’s income stream, making it crucial to manage expenses carefully.

Last month we provided some practical tips to help balance the scheme’s income and expenses. In this post, we will focus more on the steps to follow to draw up your community scheme’s annual budget.

1. Assess your community scheme’s current financial situation

Review the current financial statements to gain an understanding of the body corporate’s revenue streams and expenses. This will accurately depict the current financial situation and where costs can be reduced.

2. Prioritise expenses

Expenses can include the following:

• Daily operating expenses covered by the administrative fund like wages, insurance, maintenance and repairs, and utility bills.
• Expenses determined by legislation like CSOS levies.
• Projects included in the 10-year maintenance plan as covered by the reserve fund.
• A buffer for unexpected expenses and cost increases, for example, electricity and

Consider which nonessential expenses may be excluded or postponed. During difficult financial times, it may be necessary to reduce or defer spending on non-essential maintenance projects and some operational expenses.

The annual budget should also include outstanding debts to suppliers and/or service providers. Review vendor and supplier contracts to determine if there are any opportunities to renegotiate terms or reduce costs.

However, be careful not to default on bills or essential maintenance. Paying penalties or reconnection fees to service providers may result in unnecessary expenses down the line. Similarly, neglecting routine maintenance often leads to the need for costly repairs down the line.

3. Forecast revenue

Estimate the expected income by realistically assessing the current economic conditions. Community scheme revenue largely depends on levy collections. Take into account normal levies, special levies and any other possible sources of income (for example interest on investments and advertising income).

Did the previous budget comfortably cover all the expenses, or did some maintenance and repair jobs need to be deferred? It would be prudent to make provisions for cost escalations. Trustees may need to increase levies to cover all expenses, even during difficult financial times.

An accurate budget should also allow for collection fees to mitigate the impact of arrear levies.

4. Engage stakeholders

Consult the body corporate members and other relevant stakeholders to gain their input on the budget and suggestions for saving on expenses.

5. Create the budget

After following the steps above, create an annual budget that balances the expected income and essential expenses for the entire financial year. The financial year for most community schemes runs from 1 March of the previous year to the last day of February of the current year.

6. Get it approved

The prepared budget needs to be distributed to all unit owners to review. Unit owners are notified of the time and date of an Annual General Meeting (AGM) where the budget will be considered for approval. The approval process would require the adoption of an ordinary resolution. (Click here to find out more about voting requirements for different types of body corporate resolutions.)

Once approved, it is important to remember that this financial plan might not be set in stone, but would need to be monitored and possibly adjusted. For example, expenses may need to be reduced or deferred, or alternative revenue streams explored, as explained in this blog.

PS: Even despite the most careful financial planning, community schemes may be faced with urgent ad-hoc costs or unexpected arrear levies. In such cases, it may be necessary to apply for funding to ensure financial stability, protect property value and prevent building decay.

Click here to find out more about our bespoke funding solutions for your scheme’s unique requirements.