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Ready to Build a Bright Future for Your Club?Just Say NO to DIY Capital Reserve Study

Posted by Brent Hildreth on 5/18/18 4:19 PM

Originally published by BoardRoom Magazine March/April 2018

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Medical advancements like joint replacement have made it remarkably easy for aging club members to rebuild their crumbling physical infrastructure with the installation of a brand-new hip, knee or shoulder.

We all have a friend or golf partner who’s gone through it, but probably none who would have ever considered performing their own surgery or even worse, asking a member of their regular Saturday foursome to take up a scalpel. 

There’s no debating that the best person for such a serious job is an experienced medical professional. Preferably one who is properly trained in their field of expertise, armed with a track record of successful outcomes and proper tools for the task at hand. There are just some situations where a do-it-yourself approach should never be considered an option.

While Baby Boomer members line up to replace parts in the hope of revitalizing their golf games and social lives, their clubs are also experiencing the effects of time. Club leaders across the country are slowly waking up to the reality of aging infrastructure and deteriorating physical assets and the impact of that decline on their club’s long-term financial health. Those club leaders share a common bond in that the decision to accept a position on a private club board carries with it a legally binding fiduciary obligation to protect and grow the assets of the club. The board is tasked with providing strategic direction and a vision for the club’s future. With that responsibility comes a requirement to ask and answer some tough questions: For example, “What is the club’s ability to add new amenities?” “When should the greens be replaced?” “How much longer will the carpet and furnishings hold out?” “Where will the money come from to make those things happen?”

Unfortunately, as these difficult questions surface, some club leaders will perpetuate a common pattern of kicking challenges down the road to be dealt with by a future board. Other club leaders will recognize the importance of studying the club’s physical assets, but wrongly conclude that a do-it-yourself approach will be “good enough.”

Typically, in this DIY scenario, the assignment lands on building maintenance staff and accounting team members armed with little more than a depreciation schedule and/or the capital asset schedule. In the end, like a DIY surgeon attempting to assess and treat an aging patient, well-meaning staff members lack the time, tools and expertise to perform this critical task. The result is, predictably, an imprecise and inaccurate
depiction of the club’s future capital needs.

According to Club Benchmarking data, more than 60 percent of private clubs in the United States are currently underfunded for future capital expenditures. For many clubs, the gap exists because they lack accurate documentation of the scope, condition and life expectancy of their club’s physical assets.

The alternative to this risky and inefficient DIY approach is an objective, third-party, professional capital reserve study (CRS) to inventory, assess and prioritize capital needs well into the future. A professional CRS provides the financial starting point for strategic planning and is a critical component of fulfilling a board’s fiduciary responsibility.

Based on findings from our research and interaction with hundreds of club boards, we believe the need for professional capital reserve studies in the club industry is urgent. In direct response to that need, we expanded Club Benchmarking services to make professional capital reserve studies more widely available. Led by the industry’s foremost CRS expert, Paul Mueller, our team of Club Benchmarking CRS specialists is on a mission to deliver studies that meet these goals:

  • Help boards meet their fiduciary duty to inventory and then protect, preserve and grow club assets
  • Foster a long-term strategic view of club leadership
  • Proactively identify capital spending needs and identify any future gaps between needs and resources
  • Equip board and committees to make fact-based proactive decisions
  • Arm club executives with information to plan accurate annual budgets
  • Instill member confidence in financial plans and projections.

Our proven process of financial analysis, staff interviews and onsite inspections creates a foundation for impartial, fact-based decisions and serves as the critical input for long-term financial planning. 

From Our Video Library - Capital Reserve Study Process & Application

Topics: Board Education, Capital Planning, Articles

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