Understanding Your Strata Financials Without the Jargon

1. The Balance Sheet – Your Strata’s Financial Health Check

The balance sheet is essentially a snapshot of your strata’s financial status at a given moment. It outlines what the body corporate owns (assets) and what it owes (liabilities).

• Assets: This includes things like cash in the bank, investments, or physical property your strata community might own.
• Liabilities: These are debts or obligations, like unpaid invoices or loans that the strata scheme must pay.
• Equity: The difference between assets and liabilities is known as equity. A positive equity means the strata scheme is financially healthy, while a negative equity could indicate financial strain.

This report gives you a clear picture of how well your strata scheme  is managing its finances and whether it’s financially stable.

2. The Admin Fund – Managing Daily Expenses

The administrative fund, or admin fund, covers the routine, everyday costs of running your building. This includes:

• Routine Maintenance: Cleaning, gardening, pool, and general upkeep of common areas.
• Utilities: Electricity, water, and other costs for common areas like lighting or security.
• Insurance: To cover risks like fire, storm damage, or other emergencies.
• Strata Management Fees: The costs of hiring a strata manager to handle day-to-day operations.

Essentially, this fund helps keep the building running smoothly on a day-to-day basis. Think of it like the household budget of your strata community, used for regular and expected expenses.

3. The Sinking Fund – Saving for the Big Stuff

The sinking fund (also called a capital works fund) is a long-term savings account for your building. Unlike the admin fund, which covers daily expenses, the sinking fund is meant for larger, infrequent expenses, such as:

• Major Repairs: Repainting the building, fixing the roof, or replacing the elevators.
• Upgrades: Enhancing common areas like gardens, lobbies, or outdoor facilities.
• Unexpected Large Expenses: For example, emergency repairs or replacements that may arise unexpectedly.

The sinking fund ensures there is money available when major repairs or upgrades are needed, so you don’t have to raise emergency funds through special levies. This proactive approach helps prevent financial strain when a big bill comes in.

4. The Income & Expense Report – Tracking What Comes In and Goes Out

This report shows all the income (owner levies, interest earned, etc.) and expenses (maintenance, utilities, insurance, etc.) for the financial year. It’s essentially a record of the strata’s financial activity and helps the committee and owners understand how money is being spent.

• Income: Typically, this includes the levies paid by owners and any interest or returns earned on the strata’s bank accounts.
• Expenses: This includes all payments for maintenance, utilities, insurance, service contracts, and other day-to-day costs.

The income and expense report also allows you to compare actual spending to the budget, helping you see if the strata is on track or overspending in certain areas.

5. Special Levies – What Happens When the Unexpected Happens

Sometimes, a special levy is necessary to cover unexpected or urgent expenses that aren’t covered by the admin or sinking fund. For example:

• Emergency Repairs: If something breaks down suddenly (like a lift) and there’s not enough in the sinking fund to cover the costs.
• Unforeseen Events: Natural disasters or damage that needs immediate attention but isn’t part of the usual maintenance.

Special levies are usually a one-off contribution from owners to cover these costs. While they can be an unwelcome surprise, they ensure the building can be repaired or maintained without long delays.