Private Club Boards’ Involvement in Operations
Is Your Club’s Board Spending Too Much Time Discussing Operations?
At the recent CMAA World Conference a General Manager remarked to us that the board members of his club recently devoted 45 minutes of a monthly board meeting to discussing meal portion sizes and the quantity of mushrooms in the Chicken Marsala.
It is our view that many private club boards devote too much time to discussing operations. While a private club’s operations (before depreciation) may run at a slight profit (median of 4.4% of revenues according to a CMMA survey), this is insufficient to help a club fund its many insatiable needs for capital. The Board should focus on satisfying current members while modernizing and expanding campus facilities anticipating the requirements of the next generation of members. Our advice to Boards is to focus far more on the many components of expanding the capital base and far less on operations; that’s the job of the management team.
While monitoring operations is well within the board’s oversight function, we recommend that a private club’s board devote the bulk of its valuable (and often limited) time to strategic issues facing the club, such as:
- Increasing the membership
- Membership satisfaction
- Determination of dues, initiation fees and capital levies
- Long-term strategy
- Long-term capital planning
- Maintaining/increasing the club’s capital base
- Planning and funding the club’s aspirational capital projects, including with the judicious use of debt
- Succession planning for the board and management
- Risk Management
Membership dues typically comprise 50% of a private club’s operating revenues. Dues pay for essentially all net operating costs of the golf course, pool, racquet sports, other member amenities, property taxes, insurance and general & administrative expenses. Membership levels and dues are key board-level discussions.
Board members often feel the need to weigh in on Food & Beverage matters. While F&B revenues as a percentage of operating revenues can be in the 32%-35% range for country clubs (higher for city clubs), most clubs lose money in F&B (upwards of 10% of F&B revenues). Why? F&B is a member amenity and not a profit center. Food and labor costs are higher as a private club focuses on quality, value and service and many are open hours for the convenience of its members and not just for peak times. In addition, clubs often run multiple dining venues knowing it's critical to member satisfaction whereas a profit-minded restauranteur would focus operations more narrowly. Clubs and restauranteurs are in fundamentally different businesses. Savvy boards understand the relative importance of revenue streams and accept losses in F&B to increase membership satisfaction. That’s the key driver of dues; the most important revenue stream. Also, clubs and boards often understate the associated food and labor costs, not to mention wear and tear on the facility and possible inconvenience to members, when chasing outside function revenue.
How Can A Club Board Best Monitor Operations?
During the budget process, make sure it is thorough enough to address all operating assumptions including membership levels, dues schedule, number of functions and golf outings, payroll, benefits and other expenses. Let the management team operate the club consistent with the budget and other annual goals set by the board. Report progress at each board meeting. Understand the impact on the full-year projection. Only to the extent that variations from budget and full year projections are very significant, and not subject to management resolution, should the board get involved.
Want to discuss further? We help clubs plan for a sustainable future. For further information please reach out to Joe Abely at email@example.com or 781-953-9333, or Dave Duval at firstname.lastname@example.org or 617-519-6281.