Are you a member of a private members’ club? Or even a member of any society that is led by a volunteer board? Do you know if your club is, financially speaking, among the Walking Dead? Are you conversant with how your membership club generates revenue and spends the same?
Is your club a ticking financial time bomb — great on the outside, insolvent on the inside, unable to meet its debt obligations? Is your club perhaps about to be put under receivership? Or sold off? Ordinarily, membership clubs generate revenues from subscriptions, new membership fees and from operations — in the case of golf clubs, green fees, hire of course, cash from food and beverages would all fall under operational revenues.
In the past decade or more, Kenyan clubs have often turned to discounted membership drives to generate revenue and subsequently applying these fees to cover operating expenses.
Unfortunately, the practice isn’t sustainable because it deprives a club of the investment capital necessary to insure its future, obscures operating losses, and shields a small group of existing members from being held accountable for delinquencies. Over time, as a club neglects to make much needed capital investments it becomes less attractive to members who eventually vote with their feet and spend their money elsewhere.
Clubs which find themselves in this situation are like the Walking Dead and soon, they keel over and die.
But how would an ordinary member assess the financial well-being of their club? What areas can an ordinary member query to assess the financial health of a club?
For a start, does the club make a net operating surplus after you subtract income from membership entrance fees? Does the club have a large and growing revenue reserve equal to at least six months of revenue? Is the club’s billing system working?
Is the amount owed to the club by existing members relatively small and declining? Is the club able to pay its suppliers on time? Has the club’s external auditor served for three years or less?
If the answer to most or all of those questions is NO, then your current (or prospective) club may be facing the dreaded “golf club death spiral” that precedes insolvency, a sale or any other unintended ending for a golf club, sports club or society. This should be music to real estate developers as the “walking dead” will be coming up for sale soon at an auction near you.
What is the source of financial difficulties for most clubs? Patronage — do clubs get enough patrons to consume the products and services on offer? Do clubs attract enough millennials? What is the effect of the country’s economy on club’s finances? Is the management prudent?
And whilst many of the factors affecting clubs are beyond their control, managerial inefficiency is relatively easy to fix and probably the most common culprit. The danger often is that when cash flows are positive, bad leadership is often overlooked, largely ignored by members who don’t want to be seen to be rocking the boat. When margins dwindle and cash flows dry up, leadership ineffectiveness quickly comes into sharp focus, finally exposing the financial rot therein.
So, is your club surviving by eating the “seed corn”? Is your club living beyond its revenues? Remember, eventually the “seed corn” will be eaten and soon there will be nothing to plant in the next season — at that time, your club will firmly be among the Walking Dead.