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Guiding Your Board Through an Economic Downturn

Posted by Jim Butler, CEO - Club Benchmarking on 3/20/20 5:55 PM

Jim Butler Featured SocialOriginally published by the National Club Association in the Fall 2019 issue of Club Business Magazine.

Prior to joining Club Benchmarking as CEO in 2017, I enjoyed a wonderful career in club management that began in 1984. Along the way I had the benefit of many exceptional teachers, but when economic turmoil began to shake the club industry in 2007, I gained what was perhaps the most valuable lesson of my career.

Like most general managers, my duties included setting the agenda for the monthly board meeting. My approach to that task was typical for the industry and in keeping with my professional training. Topics covered at the monthly board meeting were mostly income statement items relating to the day-to-day operations of the club, with little if any time spent on the club’s balance sheet.

That was standard operating procedure until the day I was introduced to a newly elected treasurer, an individual who bought and sold companies for a living. Because of his background, he understood that growth was the most important indicator of health for any business and he had little interest in operational metrics like cover counts or rounds of golf. Seeing the club from his perspective was eye-opening and I quickly realized that the growth he expected me to report could not be found on the income statement.

The timing of that meeting was fortuitous as the Great Recession was bearing down on clubs across the country and many of us were wondering how we were going to survive. In the South Florida market where I was working at the time, many clubs were facing dismal options including filing for bankruptcy and revising or eliminating membership refundability policies. Initiation fees were dropping quickly and clubs were scrambling for new members to replace the stream of people resigning due to job losses and other financial woes.

That challenging period brought a fundamental change in the industry—a new membership paradigm. The male-dominated customer base changed to a more inclusive family customer base for many clubs. New members came with a different set of expectations and many clubs, including mine, were faced with the challenge of raising capital to invest in their facilities. We needed to create new facilities and enhance our current facilities to meet the needs of future members. At my club, the ambitious wish list included: a new resort-style pool, a new racquet facility, a new casual restaurant and a new wellness center.

The pressure of declining membership and the fresh perspective of the new treasurer forced my leadership focus and the board’s attention to items that we had never discussed before. How were we going to raise capital? Were we going to pay back membership refundability? Should we reduce our initiation fee or raise it?

This chapter in my career stands out as a major turning point, both in my relationship with the board and in my role as a general manager. I became a better business partner and more confident leader for the board and my responsibilities as GM expanded to include part-time project manager, finance manager working with banks to raise capital, demo- graphic researcher and market analyst charged with identifying the best-in-class facilities in and outside of our industry.

The monthly board meeting also changed as our focus turned to the improvements we were making and to membership growth. Because there were sizable investments involved, we spent more time talking about the club’s balance sheet. Instead of haggling over losses in food and beverage, the board’s sights were squarely set on repayment of the multi-million-dollar loan, the demographic makeup of our new members and reviewing project management updates. The Finance Committee took over responsibility for reviewing monthly operations, which freed up the board to adopt a more strategic view of the club. That strategic view was firmly focused on the future, not on last month’s results, and it put the club on the path to long-term, sustainable success. The insights shared here are “Lessons Learned” during my career as general manager.

Lesson 1: Refocus the Agenda

Expanding the breadth of governance at your club begins with making changes to the monthly board agenda. The resulting “new agenda” must minimize focus on today’s operations and direct attention to the future view of the club and the capital requirements necessary to realize that vision. Focus the agenda on the club’s balance sheet and balance sheet key performance indicators that matter to every club. Refocusing the monthly agenda is entirely within the control and purview of the manager and the club president or chairman of the board.

Lesson 2: Put the Income Statement in Perspective (and keep it there!)

Introduction of a new agenda should coincide with an effort to ingrain proper perspective on the club’s income statement. The majority of member-owned clubs (90%) set the income statement to break-even excluding depreciation and, by definition, a break-even outcome is not a financial driver. The income statement must be viewed as a vehicle for delivering services and amenities to the membership. The financial discussion related to it concerns making appropriate operational choices (hours of service, scope of services and amenities, level of service and quality) related to delivering membership value. Understanding the balance between operational choices and dues against the backdrop of member expectations is the proper view of the income statement.

Lesson 3: Make Every Minute Count

Invest in your club and your career by conducting an honest evaluation of the focus and format of your current agenda. How much time is the board being directed (or allowed) to spend on last month’s results or on operational issues like F&B results, green speeds and member discipline. Compare that to how much time they are given to envision, strategize and actualize the club’s future. For too many clubs, the distribution of meeting time is about 90% tactical and only 10% strategic. The board’s time together is extremely limited, and it is a resource that no club can afford to waste. A periodic review of your meeting agendas is the best way to ensure that the board’s valuable time is used to the club’s best advantage—in proactive preparation for the future.

Topics: Board Education, Articles, Club Governance

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