Protect, Preserve, and Grow Club Assets
Why every Board Room meeting should include a conversation about Growth.
Core Value: Strategic stewardship
Best Practice: Protect preserve and grow the assets through comprehensive capital planning that addresses obligatory and aspirational improvements within a unified facilities master plan.
Has your board ever had a discussion about growing the club’s balance sheet? The key balance sheet metric for measuring growth in clubs is Net Worth which we believe is the single most important data point for any club. Non-profit clubs generating capital income in excess of the depreciation expense are growing (net worth) and those generating less capital income than depreciation are shrinking (net worth). Growth in clubs results from generating the necessary capital to fund a unified facilities master plan which addresses both obligatory and aspirational improvements. The plan is critical to protect, preserve, and grow the club’s assets.
Increasing your club’s net worth is important because it forms the foundation of well-maintained and relevant facilities, which along with access to special people and programs, is the ultimate promise of club membership. The facilities are the vehicle through which the club drives engagement and builds a sense of community. Therefore, facility maintenance and enhancement are a critical function that requires the leadership’s full and consistent attention. To have the greatest chance of sustained success in the new economic and demographic environment, clubs must provide an excellent recreational experience along with up-to-date dining and social facilities that are in tune with current consumer preferences. Offering a broader variety of activities and services in addition to the key dining and golf offerings is a strategic response to the greater emphasis members and prospective members now place on these once less-important services and amenities (i.e. fitness, group exercise, aquatics).
You might ask, “Should my club be growing when we are a not-for-profit business?” Isn’t the club business different because we have a fixed number of members and fundamentally operate on a break-even basis each year? We must grow to remain relevant, improve membership satisfaction and loyalty and continuously and consistently recruit new members. Ninety percent of not-for-profit clubs set the operating ledger to break-even, excluding depreciation. The financial growth in a club stems from the capital ledger requiring capital income in excess of depreciation. This is a key point to understand in not-for-profit clubs.
Despite its importance, most clubs struggle to manage facility upkeep and planning future improvements effectively. It is a capital-intensive process, yet the rotating board structure, all-too-frequent management changes and concerns about member pushback derail efforts to ask the members for the capital to renovate or add facilities. Without a master plan to guide orderly and cost-effective facility development and a financial structure to regularly replace and grow the assets, appearances fall below acceptable standards, and the member experience stagnates. The best positioned and maintained clubs continue to prosper and grow. Many are benefitting from a “flight to quality” as members defect from lesser performers. Their success validates the benefits to be gained from thinking strategically, maintaining existing facilities with strict attention to detail, and investing in new amenities to respond to changing social habits and recreational pursuits.
What does growth look like in a not-for-profit club? The answer is found in investment in property, plant and equipment. As a matter of fact, 80% of the assets in the average club are in the net property, plant, and equipment line of the balance sheet. Net Worth is not a new term in the corporate world, but we believe it needs to be embraced in the club industry based on the fact that 63% of clubs are not growing Net Worth at or above the 3.5% per year recommended by Club Benchmarking. Is your club meeting the recommendation? Are your facilities up to date? Do you have a great resort pool, an updated irrigation system, a dynamic fitness center and great casual dining? The member experience is enhanced by great facilities which are the result of great capital planning and execution. Clubs with great facilities are typically successful and clubs with lackluster facilities are usually not successful. The quality of a club’s facilities and the strength or weakness of its financial outcomes go hand in hand in most instances.
Why should you be concerned about growth of your club? As fiduciaries of the club, managers and boards are responsible for growing the business. In fact, the definition of fiduciary is just that – one who is entrusted with preservation and growth of assets. It is one of our primary functions as professional and volunteer leaders and yet industry data shows that 66% of all clubs have net worth that is stagnant or declining. Clubs have many assets including the physical structure, the golf courses, fitness centers, tennis centers, restaurants, boat slips, and all the equipment that fits into those spaces. As leaders, we must keep moving the club forward in investing and growing our property, plant and equipment which, on average, form eighty percent of our assets. We must stay focused on planning to preserve, protect and grow the assets – which means focusing on forward-looking capital planning to assure we can keep our property, plant and equipment, fresh and up to date. A unified master facility plan coupled with a forward-looking capital plan is the vehicle for doing so.