Summary:

To understand your levies and where the money goes, we need to understand a few factors that contribute to the setting of the levy amounts. The main factors to consider are the Strata Company’s expenditure/budget, the total owner’s funds, and the Strata Company’s working capital.

Income/Levies vs expenditure/budget

The Budget and levies are two different subjects. While they should give each other consideration, MANY different factors determine how the levies are raised compared to the budget.

Budget

When determining the Strata Company budget, you are trying to ascertain with a reasonable degree of accuracy, your anticipated expenditure which is largely based on what was spent during the previous financial year period. It is also important to make provisions for what you think the Strata Company will need to spend for emergencies and unexpected maintenance.

It is also important to budget for working capital to ensure that the Strata Company does not simply expect to spend only what is required.

On average, the biggest expenditure accounts of the budget is building insurance, service utilities such as water usage, electricity usage and gas use and gardening and cleaning.

Average largest expenditure category:

• Unit size 2-9: Insurance
• Unit size 10-19: Service utilities and insurance
• Unit size 20-49: Insurance, gardening and cleaning
• Unit size 50-89: Service utilities and gardening and cleaning
• Unit size 90+: Gardening and cleaning, insurance

Levies

When considering the levies, whilst the budget gives us the grounding to consider cash flow requirements and anticipated working capital, it doesn’t give an exact indication of what the levies NEED to be until you’ve considered all of the options.

Setting a budget is relatively easy. Funding the budget is more difficult and usually requires more consideration. If you simply try to raise levies “in accordance with the budget” then you may be setting the Strata Company up to mismanage its cash flow and financial position.

The levies are decided and set by the owner’s at the Strata Company’s Annual General Meeting for the following financial year. Levies go towards payment of the Strata Company’s insurance; utility usage; gardening and cleaning; general maintenance and repairs. It’s important to remember that the levies are not only raised to pay for the regular running cost of the scheme but also to save for future projects, unforeseen or emergency works and planned preventative maintenance.

Total owner’s funds

The total owner’s funds should be taken into consideration when determining the amount, the Strata Company is going to levy each owner for the next financial year.

The total owner's funds is the amount of funds held by the Strata Company at any given time. They are calculated by determining the Strata Company’s total assets, minus any liabilities. The owners may consider this amount along with other factors when setting the levies at the Annual General Meeting.

Working capital

Working Capital is the liquidity level of the company for managing day to day expenses that cover items in the budget such as maintenance and repairs and accounts payable.

The working capital is shown as the “Total Owners Funds” on the Balance Sheet. This is the Strata Company’s total assets minus its total liabilities.

Having between 25%-35% working capital in the bank is a good guide to how well the Strata Company is at budgeting and raising income for emergencies and/or unexpected repairs.

Conclusion

You can use financial reports such as the balance sheet and income and expenditure statement to determine the financial stability of your Strata Company and how it is performing.

Having between 25%-35% working capital in the bank is a good guide to how well the Strata Company is at budgeting and raising income for emergencies and/or unexpected repairs.

A healthy bank account and working capital will most likely mean that there will be no nasty levy increases in the near future. Although we always recommend that you read the minutes of the last General Meeting to see what the Strata Company has planned.