A Very Important Topic: Long Term Capital Planning in Private Clubs
Private Clubs that use long-term capital planning to improve amenities will strengthen membership and improve the financial sustainability of the organization.
The appetite for capital in private clubs is nearly insatiable. Whether it’s for recurring replacements, modernization of existing facilities or adding new amenities, capital is the fuel for growth. We believe that clubs need to maintain, improve and add to their campuses in order to satisfy current members and make them proud to belong. Along with a distinctive club culture, a broad offering of well maintained, modern facilities are necessary to retain existing members and successfully attract new members.
At most club’s there is a hearty competition for capital funds. These funds typically come from some combination of capital fees, initiation fees, debt, assessments and perhaps funded depreciation. A long term view is needed that matches all potential sources of capital with the needs of a long, prioritized list of replacements and projects. The long term capital plan provides much needed visibility to boards, management and the membership. It is important to note that we feel it is critically important to fund a plan, not a project.
Taking a Long Term View of Capital Planning
An effective long term capital plan covering five to ten years will draw from projected changes in the membership roll, planned initiation fees, reserve studies, campus master plans, existing debt obligations and appropriate capital fees and look to fill any shortfalls with the judicious use of debt and/or assessments. Taking a realistic and long term view while funding the plan, not a project, increases the likelihood of addressing the long list of needs. We believe it’s one of the most important things a Board can do.
Communicating The Plan
When properly communicated, the plan educates the membership and future boards on a cohesive approach to the long term needs and direction of the club. We believe that Private Clubs are well served when Board’s focus more on the future and less on the current year’s budget. Communicating the vision creates credibility and a shared perspective with members and new member prospects. We’ve found this is critical to the plan’s success.
Expect Changes To Your Capital Plan
It is also important to note that planning is an iterative process. Many assumptions and figures go into the long term plan. It is no surprise that these factors change over time. We recommend updating the plan each year as part of the budgeting process or whenever a substantial new piece of information becomes available. Capital fees should be set as part of the budgeting process and the impact of the changes on the plan, which are magnified over time, should be well understood before the fees are finalized.
Private Clubs that meticulously distinguish operating from capital funds and maintain that distinction are generally the most successful. Operations should stand on its own without relying on or invading funds typically reserved for capital needs; capital, initiation and debt-service fees and any funded depreciation. A long term capital plan makes that bright-line distinction clear.
We’ve successfully employed long term capital planning at our clubs over long periods of time. We know it works and would be happy to share the process with you. Please visit us at cbpros.com.
Club Board Professionals is a strategic financial consulting and training firm. The Principals, Dave Duval and Joe Abely, assist clubs achieve excellence in three areas: governance, financial sustainability and membership satisfaction. Contact us for a complimentary initial assessment of your club.
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