Private Clubs and Vicious Circles
Long-Term Capital Planning eliminates the operating and capital deficiencies that often result in a vicious circle.
When a looping chain of events reinforce themselves and lead to detrimental results, it’s referred to as a vicious circle. We refer to this phenomenon frequently; most recently in our webinar on Long Term Capital Planning – The Road to Financial Sustainability for RCS University.
To thrive, Clubs need to invest capital to maintain and improve their physical assets. The sources of funds to invest are principally Initiation and Capital Fees, while Membership Dues are used to fund current year operations. When clubs face adversity, they often look to reduce friction in retaining and attracting members by minimizing dues increases or reducing or eliminating capital fees and/or initiation fees. It’s short-sighted and starts the viscous circle depicted below.
Once operating and capital deficiencies begin, time is not your friend. Negative events and reinforcing steps will intensify and exacerbate the problem creating the vicious circle. Temptation to defer maintenance and redirect capital sources to operations may occur. This inevitably leads to decreased membership satisfaction, fewer members, less funding and the cycle starts anew. We urge Club Leaders to be vigilant and respect the integrity of the capital funds plan. Your goal should be to create a virtuous circle where positive actions result in favorable results repeatedly. That’s the route to financial sustainability; the ultimate responsibility of the Board.
As we say, “Private Clubs have a Nearly Insatiable Appetite for Capital”. Plan on it. We can help.