One of the biggest items on a board’s calendar is the HOA year end planning session. This is the time when board members prepare for the upcoming year, sorting out finances and ensuring compliance. For fledgling boards, navigating year-enders can be confusing without the right guide.
Items to Include in Your HOA Year End Planning
Most people think that planning for the new year begins in January, but successful boards know that it starts way before that. In fact, it’s infinitely smarter to make preparations ahead of the new year — ideally before the previous year ends. But what should the board plan for anyway?
Here are the essential items to include in an HOA year end planning session.
1. Financial Review and Reporting
The first item on the list is HOA year-end financial reporting. Boards must prepare all financial statements, including income statements, balance sheets, and cash flow statements. These reports play a key role in stable and effective governance.
Of course, this doesn’t mean that financial reviews should only happen at the end of the year. Board members should monitor their accounts throughout. This way, they can have accurate records come year’s end.
Accurate reports are crucial to associations, especially when going through audits and tax filings. Moreover, boards are typically required to present the financial statements to the homeowners. This keeps everyone informed and ensures transparency as well as accountability.
2. Budgeting for the New Year
Boards that commence budget preparation early tend to arrive at more precise calculations. Budget planning involves anticipating upcoming expenses while taking economic changes into account.
Associations must consider inflation, the cost of goods, and the cost of labor. They must also revisit vendor contracts to see which ones are up for renewal and subsequently re-negotiate prices. Additionally, the board should consider what projects it intends to take up in the new year.
Maintenance and repairs also play a major role here. Aside from ongoing maintenance, the board must also budget for capital improvements, repairs, and replacements. It must ensure the association’s reserves are enough to cover the costs. Relying on the most recent reserve study is essential.
Furthermore, the board must include insurance in its determination. Premiums tend to go up every year, especially as carriers take on more risk. Boards should review their policies and ensure coverages meet the association’s needs.
While some leaders may feel tempted to make significant cuts to keep dues low, this move can backfire. Deferring maintenance can lead to premature deterioration and eventually force the board to raise dues or levy special assessments.
3. Tax Preparation
Contrary to what some may believe, associations do have to pay taxes and file tax returns. In most states, including Texas, HOAs and condos are structured as nonprofits. Even if profits are zero, associations still need to fulfill their tax filing obligations.
This is where accurate financials come in. If the board diligently kept accurate records throughout the year, tax preparation should be easy. Most communities file either Form 1120 or Form 1120-H. While boards can theoretically accomplish these forms on their own, hiring an accountant can help avoid mistakes and maximize savings.
4. Compliance and Governance
As for HOA year-end compliance, some state laws require associations to provide annual disclosures, file annual reports, or perform annual audits. Board members should also check their governing documents for any such requirements.
In Texas, HOAs are required to file an HOA management certificate. Associations must only file an initial certificate. That said, if there are any changes to the information in the original filing, associations must file an amended one.
5. Maintenance Planning
The winter season usually stops all major maintenance and repair work. Still, that doesn’t mean planning for maintenance should stop as well. One of the HOA board new year resolutions should be to pick up on any delayed or deferred maintenance once spring rolls around.
Boards should prepare the common areas and facilities, including pools, clubhouses, gyms, and tennis courts. This is also a good time to check vendor contracts and see what deliverables they have with regard to these spaces. If the association currently has no vendors on retainer, the board should get a head start on the vendor selection process.
6. Risk Management
Risk assessment and management are a big part of HOA year end planning. The board should allocate time to review the association’s insurance policies. Coverage should meet the needs of the association and offer enough protection to all assets.
Additionally, boards must revisit deductibles. A higher deductible may result in a lower premium, but it can mean a larger financial obligation for the HOA and, in turn, its members. It’s important to weigh these options against each other to arrive at an arrangement that works for the community.
Furthermore, the board must check its claim history. An association might make smaller claims, but doing so more often can sour insurance providers and result in less favorable terms. Taking a proactive approach on maintenance and prevention can have a significant impact.
It’s not just about insurance either. Board members must take everything into account. Monitor vendor performance and see if they need to be changed. Check maintenance schedules and strategies to identify weak spots. Evaluate the association’s internal policies and procedures to pinpoint anything that might expose the HOA to liability.
Addressing these risks early on is critical to the long-term success of any association. When boards ignore red flags and allow these risks to remain unchecked, things can quickly fall apart.
7. Communication With Homeowners
Communication should always be part of the board’s plan, year-end or not. Make sure homeowners receive a copy of the association’s financial statements and annual budget. The board should also present a summary of any planned projects. Ongoing projects must have updates.
Typically, these presentations take place at the annual meeting. That said, the board can keep owners in the loop by posting announcements and updates on various communication channels. These include the community website or portal, newsletters, emails, and even physical bulletin boards.
If homeowners have questions or concerns, the board must be prepared to answer them. It is also crucial to allow owners a medium by which they can submit complaints or feedback.
The Role of Professional Assistance in HOA Year End Planning
The new year can bring new changes to communities, but boards don’t have to go through them alone. Associations can hire professional managers (not homeowners), financial advisors, accountants, engineers, and lawyers to help them with planning.
Professionals draw from their expertise and experience to advise boards on the best path forward. With their assistance, board members can make better and more informed decisions for the community.
For a Better Year Ahead
Many boards struggle with HOA year end planning, especially since it involves a lot of work. Volunteer board members rely solely on established practices and documentation. To ensure accurate and complete planning, turning to an HOA management company is the best choice.
PAMco offers exceptional HOA management services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
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