It’s that time of year again – budget season! 

Over the coming weeks, we’ll be working through the budgets for the properties we manage and setting the estimated service charges for the year ahead. 

But what goes into producing a service charge budget? Our Head of Finance, Joanne Coolen, breaks this down.

Step 1 – What has actually been spent? 

We start by reviewing the current year’s expenditure. 

We look at each area of the budget and compare what we expected to spend with what has been spent so far. This helps us identify where costs are running higher or lower than expected and whether the existing budget is still realistic. 

We’ll also look at previous years where this gives us a better picture of the normal level of expenditure. 

Step 2 – Contract review 

Next, we look at the services and contracts in place for the development.  

This might include things such as buildings insurance, grounds maintenance, cleaning, fire and safety servicing, lift maintenance, electricity and general repairs and maintenance. This gives us the opportunity to review whether the current service still represents good value. 

Where we already know that a contract price is changing, we’ll build the new cost into the budget. Where appropriate, we also obtain updated quotations. 

Step 3 – The year ahead 

A good budget shouldn’t only look backwards. We also consider what we know is likely to happen during the coming year. 

Are there repairs we know will be needed? Is equipment getting older and likely to require more maintenance Are there upcoming inspections, servicing requirements or other costs that need to be allowed for? 

The aim is to anticipate reasonable expenditure rather than waiting for it to become an unexpected bill. 

Step 4 – Sense-check everything! 

Once the first draft is complete, we review the budget as a whole. 

Does it reflect what the development genuinely costs to run? Are there any unusual increases or decreases that need investigating? Have we allowed enough for the unexpected without unnecessarily over-budgeting? 

And, importantly, can we explain why each figure is there? 

Step 5 – Budget review 

Where applicable, the draft budget is shared with the Directors or relevant client for review. 

This gives us an opportunity to discuss any changes, planned works or priorities for the development before the budget is finalised. 

Step 6 – Calculating each property’s service charge 

Once the overall budget has been agreed, the costs are apportioned between the properties in accordance with the lease. 

This is what determines each property’s service charge contribution for the year. 

So, why might the service charge change? 

A higher service charge doesn’t necessarily mean that more services have been added. 

Insurance premiums may change. Contractors may increase their prices. Electricity and maintenance costs fluctuate. A development may need to start putting more aside for future major works. 

Equally, where costs have reduced or expenditure has consistently been lower than expected, we take that into account too. 

The purpose of the budget is ultimately quite simple: 

To make a realistic estimate of what it will cost to properly manage, maintain and protect the development for the year ahead. 

We can’t predict every cost down to the penny – unfortunately, buildings have a habit of producing surprises! But a well-prepared budget gives the development the best possible financial plan for the year ahead.