As a Trustee of a Sectional Title Scheme, managing the finances of the scheme is one of your most important responsibilities. Effective financial planning is key to ensuring that the scheme can operate smoothly, maintain, and improve the property, and provide services to residents. In this article, Pearl Scheltema, CEO of Fitzanne Estates, provides you with five tips for effective financial planning in Sectional Title Schemes.
Create A Realistic Budget
Creating a realistic budget is essential for effective financial planning in Sectional Title Scheme management. The budget provides a roadmap for the scheme’s financial management, and it helps Trustees to ensure that the scheme remains financially stable.
“The budget should consider all sources of income for the scheme, including levies, interest on reserves, and any other revenue streams,” says Scheltema. “It’s important to ensure that the budget includes all necessary expenses to ensure the smooth operation of the scheme. These expenses may include ongoing maintenance and repairs, insurance, legal fees, and property management costs.”
To create a realistic budget, Trustees should review past financial records and trends to ensure that the budget is realistic and reflects the current financial situation of the scheme. This can involve analysing income and expenses from previous years and adjusting the budget to account for any changes or trends. Trustees should also consider the overall financial goals of the scheme when creating the budget. This may involve setting aside funds for long-term projects, such as upgrading the property’s infrastructure or building a reserve fund to cover unexpected expenses.
Forecasting expenses is an important aspect of effective financial planning for Sectional Title Scheme management. It involves analysing past expenses and trends and making educated predictions about future expenses. This allows Trustees to plan for the future, adjust the budget or take action to reduce expenses before they become a problem.
“Forecasting expenses can help Trustees to identify potential issues that may arise, such as increased expenses or a shortfall in income,” explains Scheltema. “By analysing past trends, Trustees can identify any patterns or changes that may affect future expenses. This could include an increase in utility costs, maintenance expenses, or the need for additional security measures. By forecasting these expenses, Trustees can plan for them in advance and take steps to reduce costs or increase revenue.”
Manage Cash Flow
Managing cash flow is crucial to the financial health of a Sectional Title Scheme. It involves monitoring income and expenses on a regular basis to ensure that there is enough money available to pay for expenses as they arise. This means having a good understanding of the scheme’s income and expenses, and acting if there are any shortfalls or surpluses.
“To manage cash flow effectively, Trustees should review the scheme’s financial statements regularly,” advises Scheltema. “This will help them to identify any cash flow issues and take appropriate action. For example, if there is a shortfall in income, Trustees may need to take steps to increase revenue or reduce expenses. On the other hand, if there is a surplus, they may need to consider investing the excess funds to generate additional income.”
One way to manage cash flow is to ensure that the scheme has a well-thought-out plan for collections of levies. Trustees should work closely with the scheme’s Managing Agent to ensure that levies are collected on time and in full. They should also ensure that residents are aware of the scheme’s financial obligations and the consequences of non-payment.
Another way to manage cash flow is to create a reserve fund. This is a fund set aside for unexpected expenses or planned maintenance projects. By having a reserve fund, Trustees can ensure that there is enough money available to cover any unexpected expenses without having to dip into the scheme’s operating funds.
It’s also important for Trustees to ensure that they have a good understanding of the scheme’s cash flow cycle. This involves understanding the timing of income and expenses and ensuring that there is enough money available to cover expenses as they arise.
As a Trustee of a Sectional Title Scheme, reducing costs is a crucial aspect of effective financial planning to improve the scheme’s financial sustainability. According to Scheltema, there are several ways in which Trustees can reduce costs.
Firstly, Trustees should regularly review the scheme’s contracts with suppliers to ensure that they are getting a good deal. This can be achieved by comparing quotes from different suppliers, leveraging the purchasing power of the scheme, or agreeing to longer-term contracts.
Secondly, energy costs can be a significant expense for Sectional Title Schemes. Trustees can reduce these costs by implementing energy-saving measures such as installing LED lights, implementing a solar power system, or upgrading to more energy-efficient appliances. These measures not only reduce energy costs but also benefit the environment.
Thirdly, Trustees should review the scheme’s expenses to identify any non-essential costs that can be reduced or eliminated. This could include reducing printing and stationery costs, cutting back on unnecessary meetings or events, or renegotiating contracts with service providers.
Fourthly, Trustees should collaborate with residents to encourage them to reduce their utility usage. This could include promoting water-saving measures, implementing a recycling program, or encouraging residents to switch off lights and appliances when not in use.
Finally, regular maintenance is crucial to the long-term sustainability of a Sectional Title Scheme. By taking a proactive approach to maintenance, Trustees can reduce the risk of more costly repairs in the future. This could include scheduling regular inspections of the property, identifying and repairing minor issues before they become major problems, and investing in preventative maintenance measures.
“By implementing these cost-reduction strategies, Trustees can free up funds to invest in maintenance or upgrades to the property, improving the living conditions for residents while ensuring the long-term sustainability of the Sectional Title Scheme,” says Scheltema.
Leverage Technology for Financial Management
Leveraging technology is an excellent way for Trustees to streamline their financial management processes and reduce the risk of errors. “With advancements in technology, there are many tools and software available that can help with financial management for Sectional Title Schemes,” states Scheltema. Here are some ways Trustees can leverage technology to improve their financial management:
- Use financial management platforms: There are several financial management platforms available that can help Trustees manage the scheme’s finances more efficiently. These platforms offer features such as budgeting, forecasting, cash flow management, and automated reporting. They also provide real-time financial data, enabling Trustees to make informed decisions about the scheme’s finances.
- Adopt online payment systems: Trustees should consider adopting online payment systems, such as debit order or online banking systems, to collect levies and other payments from residents. This will reduce the need for manual cash handling and improve the accuracy of financial records.
- Implement accounting software: Trustees can also implement accounting software to automate financial processes, such as invoicing and bank reconciliations. This will reduce the risk of errors and ensure that financial records are accurate and up to date.
- Use digital document management: Trustees can use digital document management systems to store financial records and other important documents. This will improve the security of sensitive financial data and make it easier to access financial records when needed.
- Invest in smart meters: Smart meters can be installed in Sectional Title Scheme units to measure and monitor residents’ utility usage accurately. These meters can help Trustees to track and manage utility costs more efficiently, identify any abnormalities, and alert residents of any high usage, which can help to reduce costs.
Scheme Executive Training
Managing a Sectional Title Scheme is not always easy, and it requires specific skills and knowledge. To help you in your role, Scheltema encourages Scheme Executives to complete a Trustee training course. “Trustee training courses will provide you with the necessary skills and knowledge to effectively manage the scheme’s finances and help you to navigate the complex and changing environment of sectional title scheme management,” says Scheltema.
There are several Trustee training courses available for Trustees that cover various aspects of sectional title management. These courses can be attended in-person or online and cover topics such as governance, financial management, and legal compliance.
More about Fitzanne Estates
Fitzanne Estates (Pty) Ltd is a Property Management Company that can sufficiently administer your property investment to the benefit of the Landlord, the Body Corporate, and the NPC – a Non-Profit Company. Services include Letting, Sectional Title Management, Full Title Management (NPC – Non-Profit Company), and Sales.
LinkedIn: Fitzanne Estates
YouTube: Fitzanne Estates
Podcast: Fitzanne’s Property Exchange