Club Board Professionals


Advice and Resources for Private Club Management and Board Members

CB Pros Contributes to Michael Crandal and Gabriel Aluisy's Book


Our article below appears in the newly released book - THE ABC’S OF PLUTONIUM PRIVATE CLUB LEADERSHIP - by Michael Crandal, CNG and Gabriel Aluisy
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Debt – It’s a tool, not an answer

Before the great recession, approximately 20% of country clubs employed bank debt to finance capital improvements. A decade later, that number has risen to a clear majority with as many as 80% of clubs carrying debt on the books as reported by a prominent CPA firm. The reasons for that dramatic growth in the use of debt are many but collectively provide some interesting insights into the financial management of private country clubs. Since debt is unforgiving and is the primary cause of club failures, it is useful to take a closer look.

As a result of the recession and its impact on membership ranks, board leaders at many clubs deferred capital spending, cut or eliminated initiation and/or capital fees, capped or limited operating dues and tapped available capital income and reserves to support operations. While the decisions may have been well-intended, they often caused large amounts of deferred maintenance to accumulate, constricted primary sources of capital funds and artificially supported operating dues that were unsustainable. While we can benefit from the analysis of a large number of simultaneous decisions stimulated by the recession, Club Boards across the country continue to fall into many of the same traps.

When you couple the results of these decisions with significant changes in the requirements of younger new-member prospects looking for more expansive and family-friendly upscale amenities and facilities, many club leaders saw and continue to see debt as more palatable than requiring additional funds from current members to address rapidly growing capital needs. With a decade of hindsight, it’s clear that embracing debt to solve a nearly insatiable need for capital highlighted weaknesses in the planning process. These included:

  • Unrealistic assumptions about membership growth,

  • Omission of normal 4-7% attrition each year in census (and financial) projections,

  • Inadequate planning for routine capital spending in addition to debt service costs,

  • Underestimating the need for additional transformative capital projects,

  • Overstating and including planned operating profits as a source for debt service,

  • Failure to develop and dedicate a separate funding source for debt service needs, and

  • Funding a project rather than an all-inclusive long-term plan


When it comes to debt, Clubs often borrow too much, enter into unrealistically long amortization periods, and turn to incumbent banks instead of running a competitive process resulting in sub-optimal rates and terms that are often not best suited for private clubs. As noted above, many of these same clubs do not adequately plan, develop and dedicate a source of funds to repay the debt. These common actions hamstring future administrations in their decision-making options and in doing so commit the club to a protracted downward spiral.

While this all sounds very dire, debt used appropriately and judiciously can be an effective financial tool, particularly if the following best practices are followed:

  • Develop a long-term (10 years) financial plan for operating and capital funds that supports strategic, facility and reserve plans. Realistic assumptions supporting long term census projections will be essential. Understand FME’s – Full Member Equivalents. Seek help in planning. Update it annually.

  • Segregate and meticulously manage distinct capital and operating funds. These are two “checkbooks” that must be planned for and managed separately.

  • Plan for funding an all-inclusive long-term financial plan, not a project. A financial plan projects operating and capital funds simultaneously. Discuss assumptions with others who have done it before.

  • Establish and plan capital levies (initiation fees, capital fees, special purpose fees, transfer fees, etc.) that equal or exceed annual depreciation (or the long-term needs projected in a reserve study, if available) plus transformative capital spending. If debt is to be employed, be sure there are additional provisions in the plan for a source of funds to extinguish the debt. Normal annual CAPEX needs do not go away. Members must be willing to pay more for more! The costs can’t all be placed on assumed new members and inflated census counts.

  • Limit debt amortization periods to no more than 10 years; shorter is better if manageable. Anticipate there will be another major project coming along in 7-10 years that some future administration will need to face with a clean slate. It is important to remember that capital needs are nearly insatiable and maintaining, updating and transforming the facilities to meet changing tastes and requirements of new and existing members is Job 1 of Boards. Clubs are characterized by long days and short years. Plan ahead!

  • Understand debt capacity. As a rough-cut rule of thumb and for a variety of reasons, consider total debt not exceeding 1x annual operating dues as a discussion point in your planning.

  • Run a competitive RFP process to acquire the best rates and most appropriate terms. Use expert assistance. The debt package will have long term ramification to the clubs. Be sure they are well understood up front. A few general recommendations:

    • Seek a fixed rate loan without a SWAP agreement. SWAP’s are complex and can increase closing costs and be difficult and expensive to unwind

    • Avoid prepayment penalties

    • Minimize closing costs

    • Negotiate a negative pledge in lieu of a mortgage – it will save closing costs, appraisal, legal and other fees that can otherwise reach six figures and be less contentious among members

    • Limit the scope, cost and ramifications of environmental reviews (beware - any surprise findings may need to be addressed whether or not you go forward with the loan)

    • Amortize the loan over no more than 10 years, generally 5-7 years is preferred (no balloons!)

    • Be sure Debt Service Coverage Ratios are based on changes in Members’ Equity or Unrestricted Net Assets, not the more typical above-the-line operating income used by lenders in non-club settings.

    • Don’t forget to consider the annual costs of the operating accounts

    • Avoid insurance companies – they typically do not renegotiate down the line. Banks do.

  • Rotating boards, officers and GM’s make implementing long term plans very challenging. Sudden “lane changes” can be devastating. While true in any club setting, these challenges are greatly exacerbated when unforgiving debt is part of the plan. Debt limits flexibility. Annual orientations of all board members that address plans in place, board and management roles, and the club’s long-term financial plan are essential for achieving continuity in implementation. Perhaps most importantly, leadership succession planning will determine the fate of plans, financial vitality and ultimately the club. Embrace doing it well.

  • Be sure Board members focus on strengthening the Balance Sheet while management implements and reports against the board-approved “P&L” budget. Management focuses on “this year”. Boards should focus on future years, expanding the Capital Base (net fixed assets), and providing for long term capital spending, certificate/bond redemptions and debt service needs all in the context of a viable strategic plan that is embraced by the Board and membership.

Just remember, debt is a tool, not an answer. It’s only as good as the user.

Dave Duval and Joe Abely, the founders of Club Board Professionals, LLC, are both CPA/MBAs with more than a dozen years each of private club board experience as directors, treasurers and presidents. They successfully honed their skills while guiding highly-successful transformations of their clubs during challenging markets and economic times.