The Country Club Financial Operating Model

It seems as though each time we evaluate a club’s finances, there are different “wrinkles” to consider. The income/expense statements often use different terminology for similar sources of revenue and expenses and of course, most clubs have a variety of membership offerings that target different market segments and sometimes make comparison of clubs challenging.

While each club should tailor its operating model to its market, facilities and strengths, sometimes they have different names for the same things. One thing that is never popular is assessments. These have been “sugar coated” at many clubs to avoid the term “assessments”. The bottom line is that they are dues, and each member is responsible for assessments in the same way as dues. Of course, at some clubs assessments are levied in big chunks, on a one-time basis while at most clubs assessments are simply billed on a monthly, quarterly or annual basis to minimize the “hit” on the member. Since assessments are generally used for either capital projects, deferred maintenance or operating shortfalls, it seems that each club could have in their statements line items for each, and call them:

  • Capital Dues
  • Deferred (Maintenance) Dues
  • Operating Dues

This way, a club could avoid the term “assessment” and call them what they are: DUES. The problem is that many clubs seek to both keep dues low and to avoid assessments. It’s tough to do both. Most club boards, being the political institutions they are, want to keep dues down to please members and minimize pushback. To many, assessments mean somebody didn’t do their job in preparing for the inevitable maintenance and improvement projects that clubs require to stay relevant. Certainly, that can happen but there are unexpected needs and club finances often fluctuate with economic trends, meaning that expenses are often tailored to revenues rather than actual needs. Both capital dues and deferred dues can be temporary, but in most cases can be estimated with the future in mind and levied consistently.

The way in which clubs utilize funds from different sources also varies. While not uncommon for clubs to apply entrance fees to capital projects, it’s not unusual for those funds (as well as assessments) to be used for operating deficits. To develop an accurate picture of a club’s financial well-being, it’s important to be consistent in reporting and segregate operations from capital and deferred maintenance. It’s typical for many of the clubs we work with to exclude either reserves for replacement (required items) or funding for capital expenditures (elective enhancements) in their budgets. Though often not sufficient to cover these anticipated costs, an estimate of same is often based on a percentage of the club’s gross revenues. Many clubs’ reluctance to include such funding in their annual operating budgets is the reason assessments occur and can lead to clubs failing financially when they’re not prepared for these events.

When asked to advise a club, we’ll suggest developing a “sinking fund” with periodic contributions to fund both replacements of items that wear out (irrigation, bunkers, cart paths, roofing, HVAC, equipment, etc.) and future enhancements clubs may consider to remain competitive. These are typically called capital reserve studies. This usually means higher dues and often creates conflict between older members who seek to reduce the cost of membership and younger members who want to avoid the cost of replacing what the older members “used up”.

It would be nice if every club’s budgets included the same items. For instance, some clubs don’t include equipment in their maintenance costs. Some own older carts, but don’t acknowledge an annual cost to either fund replacement or lease carts in the future. The CMAA’s Uniform System of Financial Reporting for Clubs is a great start, but a clearer picture could be developed with further standardization. If it were clear that things like equipment, water, and a fund for periodic rebuilding of bunkers, repaving of cart paths and replacement of irrigation components were included in a maintenance budget, comparison of maintenance budgets would be easier and more informative.

Private clubs are complex financial enterprises. Most member-owned clubs are not for profit and decisions are typically made by “amateurs” who often seek to maintain their sometimes politicized positions of leadership. In come cases, decisions are made that are shortsighted and focused solely on controlling costs. Other times, clubs overspend often incurring excessive debt that sinks the club when times get tough and membership declines. This could be avoided in many cases by market-based planning and the use of a standardized financial operating model.