How to create a secure financial roadmap for your body corporate
Some community schemes pride themselves in having ultra-low levies, while others struggle to garner the funding to keep themselves afloat. Both situations are undesirable from a financial viewpoint, and there is significant value in keeping a close eye on your sectional title scheme’s admin fund budget and 10-year maintenance plan at all times.
By using these financial tools in collaboration, trustees are provided a dynamic and long-term overview of the scheme’s finances, and a cash flow forecast can be easily extrapolated to create a sustainable financial roadmap for the decade ahead, as well as encourage effective budgeting on an ongoing basis.
A cash flow forecast is an essential tool for averting insolvency in any enterprise, whether you manage a listed company or a body corporate.
Aside from preparing the budgets for the admin fund and reserve fund correctly, as well as updating the 10-year plan regularly, it is important that these documents are used jointly – this simple trick will help the trustees manage the scheme’s finances more successfully.
Three steps to creating a financial roadmap for your community scheme
Step 1: Create a cash flow forecast for your reserve fund
Create a 10-year cash flow projection from your reserve fund budget, also known as the 10-year maintenance, repair and replacement plan.
This is achieved by calculating the budgeted capital maintenance expenditure against the reserve fund’s opening balance, total contributions and interest earned to arrive at the closing balance for each year.
Step 2: Create a cash flow forecast for your admin fund
Create a 10-year cash flow projection from your admin fund budget by escalating the expenses over time (similarly to the 10-year maintenance plan) and calculating the total annual expenses against the opening balance, total income and arrear levies (if any) to arrive at the admin fund’s closing balance for each year.
Step 3: View your cashflow forecasts in conjunction
Place the two cashflow forecasts alongside one another and tweak their respective variables – such as expenses, maintenance schedules and levy contributions – until you arrive at a balanced scenario. This refers to a scenario in which the combined contributions are sustainable to fund the planned capital maintenance expenditure and budgeted admin fund expenses, while being reasonably affordable for the community members in the long run.
You now have a financial roadmap for your community scheme. However, it is important to keep it up-to-date and regularly make adjustments for:
- actual costs incurred
- quotations obtained
- necessary maintenance activities
- changes in interest rate
- changes in inflation rate
You may wish to further expand your spreadsheet by adding a self-calculating levy schedule that indicates the monthly levy contributions per unit based on each unit’s participation quota. (Click here to learn how to calculate the levies.)
Creating a financial roadmap may seem daunting, however, once you have compiled your spreadsheets, you’ll have the necessary tools in place to confidently manage your scheme’s finances.
How can Mirfin assist you?
We offer an easy-to-use online template that will guide you towards becoming an expert financial manager for your body corporate.
Click here to request a quote.
