Whatever the budget comes down to, be transparent with the membership and clearly define the reality of the club’s operating and capital needs. The news may not be welcome; however, it’s important to remind everyone that no one ever saved their way to prosperity.
Here we go again. As the leaves move from turning colors to falling off the trees, golf Up North is winding down while Down South it is cranking up. Regardless, the 2019 budgeting process for most clubs is well under way.
Variable costs for staffing (which are going to have to go up, to keep quality personnel in today’s full-employment environment), as well as health care, insurance, chemicals and fertilizers, and F&B items, to name a few, are a challenge from year to year. These expenses need to be controlled; however, a cut too far here or there leads to diminished service and corresponding member/guest unrest.
Don’t hesitate to raise dues to sustain your club’s level of excellence, whatever it may be— and be very transparent about why the dues are going up. Members may not like it, but they will understand it—most of them will be increasing 2019 prices for their company’s products and services, too. No one ever saved their way to prosperity.
Capital expenses are another matter.
Clubs operating with a strategic plan have a distinct advantage in this annual tug-of-war for what is normally a limited capital budget. The plan includes a list of annual investment spending priorities, along with a strategy for raising the required funds. So, the path for addressing annual capital spending needs is pretty well-defined.
For other clubs, the path for addressing these annual capital costs is not so clear. The competition for available dollars may be fierce and the squeaky wheel will often get the grease (i.e., a member of the Board of Directors who argues most astutely for his or her pet project). In this scenario, while the BOD may be satisfied, it may not be in the best long-term interests of the club.
Experience suggests that clubs will face some sort of major renovation project, or significant capital spending need, every 10 years or so. This is inevitable and will normally involve the clubhouse, the golf course, and/or recreation facilities, including the pool, tennis courts, or fitness facilities. A pattern of deferred maintenance for a number of years will leave a club faced with a multimillion-dollar need for the fix.
So, where will the money come from?
In years past, many clubs simply tapped into the wait list to bring in new members, and the corresponding initiation fees. Capital problem solved. While the wait list has returned for many clubs, the majority must use a combination of assessments and debt to finance their capital needs. These costs are in addition to monthly dues—which are primarily used to cover annual operating costs.
Every club will differ in how much the membership can bear in annual fees for capital expense—most likely a combination of an assessment plus the monthly payment on debt service, including principal and interest. Given the “every 10-year” need for substantial renovation work at the club, it is best to schedule debt retirement over a 10-year period of time if you can. That way, the club is debt-free as it approaches the need for the next round of significant investment.
Whatever the budget comes down to, be transparent with your membership and clearly define the reality of the club’s operating and capital needs. The news may not be welcome; however, it’s important to remind everyone that no one ever saved their way to prosperity.