Don’t buy a membership before you answer these questions about the club’s finances
A prospective member’s guide to making a smart investment in a new club
Jason Becker, PGA
May 10, 2019
See the full article on golfadvisor.com
As an entrepreneur, I have had the good fortune of learning from the smartest people on the planet when it comes to investing. We all make investments, whether it’s our 401k, a college education for our kids, a new vehicle or even a home. That being said, there are two different kinds of investors and you probably fall into one of these groups:
1) The investor who goes with their gut and decides based upon feeling, or
2) The investor who looks at the numbers and can extrapolate trends to see what their potential return on investment may be.
But what if I told you that while searching for a private club membership you will need both skills? And, by the way, throw out what you learned in business school because that logic will not apply when reviewing a club’s financial report.
At Golf Life Navigators, approximately 33% of buyers would like to be viewed as an “important member” at their future club by serving on the club’s board or helping with the club’s governance. Moreover, women would like to be involved as well. They consider “investment into the club” four times more important than their male counterparts. In short, consumers are concerned about the financial health of their future club and want to ensure their investment is protected or, at the very least, that they made a smart financial decision.
A common issue we hear from club officials is that new members come into the boardroom with a notion that the club should read positively on a financial statement. The mentality is, if a department is “in the red,” you need to shake it up or pivot. Sounds logical, right?
Consider this before answering that question: if the food and beverage operation lost $50,000 last year, does it mean you fire the chef or general manager? Perhaps, but after studying the industry, you find a $50,000 loss in food and beverage is less than 80% of clubs nationwide. As it turns out, the last thing you would want to do is fire the chef or GM. Instead, shake their hand and extend a warm “job well done.”
My point is that private clubs are not necessarily built to maximize revenue or create a dividend for their equity members. Private clubs are on a mission to serve their membership and create financial sustainability by use of member dues to fund the annual operation. In addition, they sustain themselves by member capital contributions to assure the club can reinvest in its physical assets as necessary. Each dollar is earmarked toward a specific budget within the club’s financial operation or master plan. So, when you ask to see the financial statement of a club prior to investing, take a deep breath because it may not fit your preconceived view of how a business functions at peak efficiency…and that’s okay!
In this article, my objective is to teach you how to read a club’s financial statement before investing into a club and share a few tips on flagging negative trends. But before we do that, we have to agree that when you look at a club’s financial statement, you won’t flip to the back page and look for an EBITDA. Agreed? Private clubs are a different animal, so it is imperative that we understand the dynamics of a private club’s finances before jumping into the numbers.
The industry’s leading expert in private club financials is a gentleman by the name of Ray Cronin. Ray is a graduate of Harvard’s MBA program and co-founder of Club Benchmarking, a firm that studies private club financials around the world. Ray has also served on the board of directors of his home club just south of Boston.
Below are a series of questions that I asked Ray so that we could establish a foundation of education ahead of your financial due diligence with prospective clubs. But first, keep in mind a few points before hitting a club official with these heavy topics:
1. The membership director is not responsible for this info, so you should speak with the CFO, general manager or the board’s finance chairman.
2. Take a notepad to write down the numbers; it would be difficult to conduct this level of math during conversation.
3. If the numbers are less than desirable, don’t necessarily give up on the club. Ask the relevant official what the club’s plan is to get financially healthy in the short and long term.