The Key Ingredients of Financial Sustainability in Private Clubs
What are the measurements for success at a Private Club? Read how financial sustainability and a unique identity are the foundations of a strong membership.
We’ve been giving a lot of thought to what it means for Private Clubs to be successful. In our attempt to define what it means to be successful, we came up with financial sustainability while maintaining a distinctive identity and the most important traditions of a Private Club. At its core, financial sustainability is achieved when a Private Club can continually renew its membership base through new admissions while accepting meaningful initiation fees.
The need for a strong membership base that renews itself over time with robust new admissions is somewhat obvious but is dependent on a few critical components.
Current Member Satisfaction
We believe the ability to attract new members in sufficient numbers is largely dependent on engaged, enthusiastic and satisfied current members willing to invite and sponsor friends and colleagues. What does it take to develop that membership mindset? In our experience, it is linked to the perceived value of amenity and service offerings delivered in state of the art, continuously modernized facilities that update to changing desires over fairly short cycles. The last ten or fifteen years have clearly seen a shift toward broader amenity offerings catering to the needs of all family members. For the vast majority of Private Clubs, it is not just about golf anymore. Family activities, wellness, spas, racket sports, swimming, recreation programs, sports camps and casual dining have all earned their place in the discussion. Private Clubs that moved in this direction have best positioned themselves for success. Of course, this took foresight, effective leadership, careful planning and, of course, cash. A lot of it. That’s where initiation fees come in.
New Member Initiation Fees
Initiation fees along with capital fees, special assessments and/or debt, are the fuel for campus facility updates, improvements and expansions. The rejuvenation process is hampered when sufficient initiation fee revenue is not generated. Many Private Clubs facing declining membership lowered initiation fees in an attempt to draw more members. Most of those Clubs subsequently found it difficult to increase the initiation fees to previous levels and were forced to defer capital updates, improvements and expansion. For many, that began a downward spiral of membership dissatisfaction, facilities decline and too much reliance on golf to attract new members. Some Private Clubs will be forced to accept their fate but effective leaders can reverse the course. It starts with planning.
Long Term Capital Planning
We see Long Term Capital Planning as a most important step. It involves the matching of expected sources of capital (primarily Initiation Fees, Capital Fees, Special Assessments and Debt) over the next 5-10 years with the programmed uses of capital as drawn from professionally or internally prepared reserves studies, the Master Plans, debt service schedules, bond retirements and other sources. We believe that funding a plan, and not just a project, is the surest way to financial sustainability. It allows the Private Club to smooth out the generation of capital sources to be applied against a very “lumpy” flow of capital uses. It’s the “lumps” or major expenditures that cause most of the headaches in Boardrooms and why many mission critical projects get deferred or defeated. The importance of a disciplined approach to planning and accumulating sufficient capital funds for the planned needs cannot be emphasized enough.
We encourage you to take a long term view and start planning now. We welcome all feedback and the opportunity to discuss our thinking, services and training programs with interested Private Club leaders. Please visit contact us for more information on our services.
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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