May 25, 2023
268: Board Chats-Boardroom Finance Essentials for Club Stability
In this episode of Board Chats with
Peter Nanula from Concert Golf Partners,
we delved deep into the financial operations of private clubs,
highlighting the crucial role of financial forecasting.
We emphasized the necessity of a base case financial forecast
and the importance of having phased capital projects
to avoid potential fiscal pitfalls.
Peter underscored common mistakes made by
private clubs, including over-borrowing and misappropriation of funds,
which could lead to unexpected member assessments.
Additionally, we addressed the importance of proper budgeting to avoid these scenarios.
Finally, we discussed the role Concert Golf Partners can play in providing valuable consultation and potential solutions for clubs facing these issues.
Visit the Concert Golf website to learn more about their boutique approach to private club management, and be sure to connect with Peter Nanula on LinkedIn
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Denny Corby Linkedin
00:00 - Private Club Boardroom Finance Basics
17:34 - Financial Strategies for Club Survival
30:58 - Effective Financial Management for Private Clubs
45:00 - Exploring Solutions for Clubs
WEBVTT
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Welcome to Board Chats presented by Concert Golf Partners, the boutique owner-operator of Upscale Private Golf and Country Clubs nationwide.
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Here on Board Chats, we are All Things Private Club Boardroom.
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We're here to deliver valuable insights, expert advice and actionable strategies that will elevate your boardroom experience.
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Join us as we unlock the secrets to improved decision-making, enhanced board communication, strategic planning and long-term success.
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I'm your host, denny Corby, alongside CEO of Concert Golf Partners, peter Nanula, on this episode of Board Chats.
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I wanted to bring on Peter.
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I wanted to do something more along the lines of the basics of boardroom finance, and not just the basics.
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really, the whole gambit is all about boardroom finance, private club boardroom finance Because for me, i wanted to know.
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I'm not an expert by far on any of that stuff, let alone boardrooms.
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So for me it was also a hey, let's learn a little bit more about the basics for someone who might not know.
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And also, it's just always good to go back to the basics and just hear and re-hear the reassurance of things that you need to do.
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So welcome back to Board Chats.
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What, in your opinion, are the basics of a boardroom finance?
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Are there any key financial terms, concepts that every board should be familiar with?
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Yeah, i think one of the good things that people do in the business is it's to like a new board member introduction right.
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Because if you're a doctor, lawyer, business owner, you might be a fairly sophisticated person but you may not know much about private country club budgets or funding or finance right.
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So I think club benchmarking has some of this.
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I think there are several consulting firms that do offsite retreats for new board members and they really bring them up to speed on some of the basics.
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But yeah, the budgeting process, the way that operations typically are run separately from funding capital projects.
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So, like your capital account, initiation fees come in from new members joining.
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If people pay capital charges in, those go to a separate account.
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And we do the new greens, we do the new bunkers, we build a new girl room, separate fund operations and we got a pair of people to run the club every day and keep the place open.
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A lot of times board members are completely new to that whole dynamic.
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How does the financial structure of a private club typically work And it can maybe talk about the key responsibilities of certain board members when it comes to overseeing the finances.
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Yeah, so typically a board of a member owned club, which is 80 plus percent of all private clubs in America.
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Yeah, you've got a president, vice president, secretary right.
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It's in the bylaws that those people need to be elected.
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And then there's typically a finance committee with one of the five, 10, 15 committees of the club.
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So normally you're gonna have a finance chair and then you're gonna have several other members on that committee the finance committee And their job is, like you said, budgeting capital for projects and those sorts of things.
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So that group is a committee that the board delegates responsibility for the finances too.
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There are some common misconceptions about private club finances that boards should be aware of, maybe even like address.
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Well, there's lots of those Misconceptions.
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I think a lot of people in the club industry think you need to lose lots of money on food and beverage and subsidize that with your golf operations.
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That's a pretty typical one.
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We've seen them all over the map.
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We've seen clubs that lose $2 million a year on food and beverage 2 million a year But big club people paying a lot of dues, initiation fees, and they're very profitable And the other part of the business in their view is let's subsidize that.
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We see other clubs that manage to break even or eke out a little profit in food and beverage.
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So a little bit of a misconception there.
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Some make maybe common financial challenges Like what are like the kind of ones that you see.
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Yeah, i think one of the biggest ones is, like we talked about before, lack of board member education about the club business and finances, and that's why I think it's become sort of a best practice to get a subscription to club benchmarking, which is relatively inexpensive for most clubs.
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You get data from them.
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Here's my club where you are in Pittsburgh, and here's the seven other clubs in Western Pennsylvania that are at a similar size and kind of price point.
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Well, how come they lose 200,000 a year in food and beverage and we're losing a million?
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How come their payroll is 47% of total revenues, right?
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staff payroll and ours is 58?
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Oh, well, maybe we should sit down and talk to our general manager about why our payroll is so out of control.
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So I think club benchmarking data is good Introductory education for new board members.
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So I think just sort of lack of new board member education is a key challenge.
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Another one I think Denny is moving targets, changing priorities, personal agendas, right.
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You and I joined the board of our local club.
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You're a big tennis guy.
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I'm a low-handicap golfer.
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I really want the greens to be at 13, 14 on the stint meter.
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You don't wanna spend any money on golf because you're a big tennis player.
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You wanna put in a tennis bubble?
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Okay, everyone's got a different agenda.
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How about, once we make the annual business plan?
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that's just the plan.
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We're just gonna stick to it.
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We're not gonna come to every meeting and whip-saw between changing priorities.
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So yeah, those are a couple of the biggest challenges I see with member-own, member-governed clubs.
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What financial reporting is typically required from the boards?
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How often should they review those?
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What are the certain things that have to be looked at, and how often should they be looked at and monitored?
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I would say most member-owned clubs have an annual budgeting process and then they have monthly or quarterly board meetings and they get updated financials from the general manager and then they have a board meeting about it.
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At least the finance committee is doing that, at least monthly, and then the board will look at it.
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You know it really varies, denny.
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I think some do a good job of it.
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Best practices, i think, include doing it more frequently, monthly.
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I think having some communication with your members.
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You're probably going to ask me about that.
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You need some more transparency with your members to say, hey, we're up in members, we're down in members, we're ahead of our plan, we're behind our plan.
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Because of that, we're at trim costs here, we're going to hold back on this project or we're going to accelerate because we're in a unique position right now.
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Like more transparency with the members is the thing we hear over and over again.
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It really builds trust and the clubs that we see struggling with their membership and with trust are the ones who are very secretive.
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How can boards kind of involve and educate their members of the clubs' finances but without kind of compromising confidentiality or kind of unnecessary alarms and stuff that might be a little?
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bit weary.
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Yeah, that's a tricky balance.
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The best practices we see out there, denny, are boards that are much more open with their members.
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They do focus groups Right.
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Let's get a group of 10, 20 members.
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Let's ask them what their priorities are for capital projects.
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Let's ask them what we're doing.
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Well over now They do member surveys, mcmahon Group and Club Benchmarking and a ton of consultants do really good surveys.
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Club 59 does really good member surveys.
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They do town hall meetings and bring people up to speed on state of the club.
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How are we doing Here's our annual business plan When they share the business plan and the budget with their members and then they have regular financial communication with the members and they really build trust that way.
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The ones we see get into trouble are the ones that are very secretive and they don't tell their members much, and then the members are asking tons of questions, feeling frustrated, don't trust the board.
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Now do you have to tell every single number?
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No, we've got to give some highlights so that members feel like we're being dealt with straight.
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People are trying to share information with us so that we can understand how our club is doing.
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What's a gauge people can use to see their club's finances?
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Obviously, if they're on the outside, maybe looking in, or maybe they're on the board but don't know 100% of everything, is there a gauge or litmus test, almost where people can?
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I don't know if it's asking a question, but is there a way for people who maybe may not know that they can gauge and go?
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oh okay, maybe we're doing well here.
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No, we're doing better than we thought.
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Yeah, there's several, i would think a number of members Dues.
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How much dues are coming in compared to what we budgeted?
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Let's face it the dues of a club are the lifeblood of the club business.
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All revenues come from either You and me paying our dues and then spending on Satan, reverent, spending our cards, guest fees and everything else.
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How's our total membership count versus our original plan?
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How's our dues looking?
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Are we profitable or not?
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Those are some of the basics.
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You mentioned dues quick.
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How do boards and private clubs address outstanding dues, member debts, unpaid fees, because that can add up very, very quickly.
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Yeah, I think this is another area of weakness in club governance that we see quite often is somebody has a personal relationship with a family that has an issue.
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The board will make a personal exception for someone who don't have to pay their bill.
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You can imagine in a one-off case where some horrific health tragedy or some military family or you can imagine a valid excuse.
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The problem is when you go from one or two valid excuses like that for a leave of absence or give a person a break on their bill, to 10, 20, 30, 40 of these floating around.
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That's what we see is we see clubs that go beyond the rare exception and there's just a lot of people not paying their bill for 16, 90, 120 days, 180 days, and they're just letting it slide, Thank you.
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And the problem we hear is not just financial.
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It's all the other members who are paying their bill dutifully every month And then they find out that there's 25 other people that are at the club golfing, eating, not paying their bill.
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It's just not fair right To the rest of us that are paying our tab.
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So you know, we have a we have probably a more disciplined approach to that, where there are much fewer exceptions because we find people like it from a fairness perspective, you know.
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so obviously you know clubs have to be a little bit in a good financial place to be able to support some of those unpaid fees and debts and stuff.
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You know how should clubs kind of manage their reserve funds and determine, you know, the appropriate levels to, you know reserve and maintain.
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Yeah, reserves are key, right?
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There's a whole industry of people who do what are called a capital reserve planning, And so you can hire these people.
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I think club benchmarking is one of the firms that have the capital reserve consultancy.
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You call them in, it takes them, you know, a month or two and they do a detailed read on all your assets, your maintenance equipment, your golf course, all your facilities And you know what's the useful life of bunkers and greens and equipment and all that sort of stuff.
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And then you can see a spreadsheet.
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Wow, we need to spend $700,000 next year on upkeep of our stuff, or we're gonna look up in a few years and we're gonna have a huge pile of multi-million dollar deferred maintenance.
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So start with a capital reserve study and then come up with a funding plan for your capital needs that matches somewhat that capital reserve study.
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How do private clubs manage cash flow to ensure they have enough funds to cover operating expenses?
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No all over the map, you know the best ones.
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Like I said, we have a finance committee that has monthly reviews of their results with the general manager And if you're below or behind your plan with membership or results, you got to make some adjustments.
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I would say most clubs don't.
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Most member owned clubs don't keep up with that And so they will fall behind.
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Maybe we have a few fewer members this year and they won't make any adjustments, and then the end of the year comes and they say well, we're 320 members instead of 350.
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I guess we got to raise the dues by eight or 9% on everybody to catch up with the fewer members.
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Well, guess what happens when you raise dues eight or 9%, 20 more people quit, cause that seems like a pretty high dues increase.
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And then you get into this spiral of we're raising our rates so much that we're driving some of our members off And some of the members around the board table will say well, listen, if they can't afford it, they don't belong here.
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Okay, that may be fine for me and you and a bunch of our friends that put golf together on Saturday morning, but how's this club gonna be when we only have 160 members?
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We need the whole community and not everyone can write the big checks quite as easily as the rest of us, right?
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And so we see that kind of thought process filter into clubs that end up maybe two years, five years down the road in some trouble because they price themselves out of their local club market.
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Are there any cool trends or innovations that are going on kind of in the private club finance and governance that a board should be aware of?
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Again, i keep referring to club benchmarking just cause I think in the last decade or so, the emergence of real data for boards to sit around and look at is a huge help.
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The idea of volunteering for the board of your club not knowing anything about how it works and then not having any data in front of you based on comparable clubs or anything, just seems like flying blind.
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So I think that's been a huge improvement.
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I think a lot of clubs in the last decade that I've been doing this have been more open to having conversations with outside parties, whether it's Trun Golf or people like us at Concert Golf, where, hey, we might not be shopping for a management company to help us or we might not be thinking about getting capital or help from a firm like Concert Golf.
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But shouldn't we have somebody on our board?
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go to Club Management Association of America annual conference?
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Shouldn't we have somebody on our board?
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do a Zoom call with somebody at Trun or Kemper or Concert Golf or Clubcore just to see what's out there.
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Because when I do get on a Zoom call with a number of these board members, their eyes are just pinned open.
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They can't believe what they're learning right.
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They can't believe we saved $300,000 a year buying the same stuff that they're buying.
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How Well, we're buying for 30 clubs.
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They can't believe that we fund all these multi-million dollar capital improvement projects and the members never get assessed.
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Wait, this sounds almost tricky to be true.
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How is it that you could build a whole new member patio with a grill and it'd cost you $2.7 million and the members are still just paying $8.25 a month?
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and then how does that work That there just seems like the scales are coming off their eyes.
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They didn't know that there are other options.
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They didn't know there are other experts, because they're just in their town, driving over to their club, talking to their general manager and going back home.
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That's their only data source.
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So I just see exposure and education.
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I've seen a nice trend in that direction.
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You mentioned a little bit more about membership decline.
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Times, depending on who you listen to, might be a little uncertain right now, in a time of like economic downturn membership decline.
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How can boards adapt their financial strategies to ensure the club's survival and long-term success?
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Yeah, a great question and very timely, because the last three years have been three of the best years in the history of the club industry, with COVID and with people looking for somewhere to go that's outside and healthy and safe.
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It's been fantastic for golf, but in the last six months or so, most of the industry has started to see the return to normalcy people going back to an office and a teeny bit less rounds played and golf and membership demand.
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So you're starting to see it.
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And then this recession top that's out there, it's coming, and so how do you adapt?
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So I think one of the biggest things that people do in the board of their real company but they don't do in the board of their country club is have budgeting that has like a base case.
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Here's what we're all hoping There's no recession and we had 50 new members this year and we lose 40 and we're doing great.
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Well, where's your downside case?
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Everybody's company has a downside case budget for if things don't go well, if we hit a recession, okay well.
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Does your general manager giving you a downside case budget for your club?
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Okay, well, if we start to see those trends happen, what are the action steps that our general manager is authorized to take to cut here and make certain changes that we've all authorized him to do.
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Otherwise, wait, we're going to get six months into our recession, we're going to start having panicky board meetings, we're going to keep doing everything as if there's no recession and everyone's going to get surprised, and we're not communicating effectively with our members.
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So I think that's one of the things that people should be talking about now What happens when the recession hits?
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Do we already have a downside budget that we could pivot to?
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Not just even the recession coming, but I mean there's other, tons of other financial risks, you know natural disasters, unexpected events.
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How can clubs manage those risks?
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a bit more.
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Exactly, yeah, and that's why we talked about the capital reserve fund idea, which is, if you're putting aside money every month into a capital reserve fund and a hurricane hits like this happened to us at a bunch of our Florida clubs you have money that's been sitting there storing up, well, for a rainy day or a surprise like a hurricane.
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If you're not funding into a capital reserve fund, then you're dry and you have to go out to your members and say sorry, you know there's 200 trees down on the course, the roof caved in on the clubhouse and we got $2 million of work to do.
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Club's going to be closed for two, three, six months.
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Members don't want to hear that.
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They want to hear that you already planned for it and the crews are out there cleaning everything up because you have the money in the bank to go deal with that stuff, right.
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So reserve funds are critical.
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And if you're a concert golf Correct, you don't have to worry about it Exactly It's going to get fixed.
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It's going to get done.
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Yeah, having us involved it's really different Like this.
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This conversation is not an ad for concert golf or dealing with companies like us, but it is striking when we talk to these board members at our clubs.
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Right, no debt, we pay off all their debt.
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So being a debt-free club means you're not paying your bank loan payments anymore.
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The one we're doing right now in the Midwest is a club we'll take over in about a month.
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You know they're paying $250,000 a year to their bank.
00:20:45.904 --> 00:20:51.673
It didn't sound like a ton, but that's $250,000 every single year.
00:20:51.673 --> 00:21:02.075
They could be going to Greens renovation bunkers, redoing the clubhouse and all these things that members are talking about at that club.
00:21:02.075 --> 00:21:08.352
But no, they're going to check the bank of wherever every year and that money's going out the door.
00:21:08.352 --> 00:21:08.952
So that helps.
00:21:09.180 --> 00:21:11.788
And we, like you said, we fund all the capital projects.
00:21:11.788 --> 00:21:15.160
All our clubs have the benefit of our purchasing power, right?
00:21:15.160 --> 00:21:24.574
So we'll save $200,000 to $300,000 a year at that club just because we buy seed, fertilizer, chemicals, golf cards.
00:21:24.574 --> 00:21:32.830
We buy it all as a large crew from the same vendor, from the same sales rep, on the same truck.
00:21:32.830 --> 00:21:39.430
It's the same products but we have a different rate sheet Because we're buying in volume and they'd like to deal with somebody like us.
00:21:39.430 --> 00:21:48.469
So that club is now at a significant cash flow advantage because they're not paying their bank and they're saving money on purchasing.
00:21:48.469 --> 00:21:55.155
You know, several hundred thousand dollars a year and extra cash flow That's wild Yeah.
00:21:56.682 --> 00:22:03.305
That's really wild, it's something that's unbelievable to have that much extra revenue Exactly Basic revenue, i mean cash flow.
00:22:03.345 --> 00:22:05.029
I mean, yeah, you mean revenue coming in cash flow Exactly.
00:22:05.029 --> 00:22:16.263
And a lot of the board members, like another one we're talking to right now, will say well, tell me which of your clubs are profitable and which aren't doing so well, and I look them straight in the eye and say we have 29 clubs.
00:22:16.263 --> 00:22:21.592
All 29 are profitable this year, last year, every single year.
00:22:21.592 --> 00:22:23.134
What?
00:22:23.134 --> 00:22:24.862
They can't believe it.
00:22:24.862 --> 00:22:31.571
They think, well, you just did a big project and so a bunch of new members joined and you're at a really exciting time at Club X.
00:22:31.571 --> 00:22:33.355
Because we did that six years ago.
00:22:33.355 --> 00:22:47.660
We redid our clubhouse and it was booming, but then three years later a new board came in and times got tough and we didn't have a reserve fund and we went through a deferred maintenance period for three or four years and we were losing money.
00:22:48.461 --> 00:22:52.491
They go through boom and bust cycles at a typical standalone club.
00:22:52.491 --> 00:22:55.269
All of our clubs are profitable every single year.
00:22:55.269 --> 00:23:10.021
But because we have these advantages that are built in and most of these board members just want their club to be sustainable long term, be a wonderful club, have their home values around the golf course to be in good shape And they just want to go enjoy it.
00:23:10.021 --> 00:23:11.204
They don't want to be worrying.
00:23:11.204 --> 00:23:19.567
Whether the club is riding the wave of the COVID or the recession, they just want it to be there for the next 50 years, right?
00:23:22.141 --> 00:23:32.680
So there are ways that you've seen where clubs can maybe handle or find opportunities for cost saving measures, but ones that don't particularly compromise the member experience.
00:23:32.680 --> 00:23:37.748
Obviously, you guys have the pool buying power, but a normal club, how in the board?
00:23:37.748 --> 00:23:41.273
what can they look for to use some cost savings?
00:23:42.421 --> 00:23:45.284
No, they can do it too, maybe on a little bit lesser scale.
00:23:45.284 --> 00:23:57.926
But there are buying groups, there are group purchasing organizations, GPOs, that you can join And some general managers know how to tap into that.
00:23:57.926 --> 00:24:04.605
They might not save quite as much money as a group like us, and you know, frankly, listening to your general manager more.
00:24:04.605 --> 00:24:08.992
Hey, general manager, we're 200,000 short this year.
00:24:08.992 --> 00:24:13.680
Where would you recommend we cut and not affect the member experience this month?
00:24:13.680 --> 00:24:20.012
Most good general managers It's not a happy conversation, but they know how to do it.
00:24:20.012 --> 00:24:23.923
They've been in the club industry for 10, 20, 30 plus years.
00:24:24.605 --> 00:24:45.564
The challenge, i find, is when an board member comes in, has their own agenda or orientation because they're in a certain business They're in the real estate or the marketing or whatever kind of business they're in and they'll show up not having been in the club industry and they'll say I think we should do acts because they don't really care about tennis, so let's just cut over there.
00:24:45.564 --> 00:24:47.228
Or why don't we do?
00:24:47.228 --> 00:24:47.588
why?
00:24:47.588 --> 00:24:49.752
Because we never go out to the pool.
00:24:49.752 --> 00:24:56.695
My wife and I don't have young kids And so we don't use the pool like these other 200 families do.
00:24:56.695 --> 00:24:57.660
Why don't we cut that?
00:24:57.660 --> 00:25:03.680
Well, the issue is you're not thinking about the whole business like the general manager is right.
00:25:03.680 --> 00:25:11.977
So I task the general manager to come back with $200,000 of cuts that aren't going to affect the overall member experience.
00:25:11.977 --> 00:25:13.118
They know how to do this.
00:25:13.118 --> 00:25:13.680
They're trained to do it.
00:25:13.680 --> 00:25:18.352
So I would say listening to your general manager is rule number one.
00:25:18.352 --> 00:25:24.741
So simple It sounds simple, but it's hard.
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