The Fallacy Of Private Club Efficiency, The Truth About Responsibility, And Changing The Narrative To A Role Of Responsibility & Accountability

Ever hear a member of a club tell an employee, “This Club really needs to be more efficient. You need to run this place like a business.”

To which I will often respond – It is a business. What kind of business would you like me to run?

Before we get into this, let me first just set the record straight here: There is nothing materially “efficient” about a non-profit private club or HOA. They are not as efficient, nor are they driven by efficiency, as other industries – both by intentional choices and by design. Different industries have different drivers of success.

What is an “efficient” business? Mostly for-profit organizations that are driven by maximum output and utilization with the least amount of input and resources. This can mean an obsessive culture of reducing costs, running as lean as possible on staffing and services, and a dependency on sales volume and high turnover to produce margins to the bottom line.

Auto manufacturing, retail operations, fast food chains, the airline industry, hotels, and even public golf courses are all industries that are heavily dependent for their survival based on efficiency. Airlines, hotels, and public golf course industries are measured by their ability to successfully maximize their available capacity (seats filled on a plane, rooms booked, filling the tee sheet with as many tee times throughout the day – all at the maximum booked rate per unit) with the least amount of resources available.

Recent Research

In private clubs and HOAs, a significant percentage of the organization’s expenditures are actually quite fixed.

Recent research by ClubBenchmarking proves that on average, approximately 70% of the organization’s annual operating expenses, including their employee payroll & benefits, are fixed.

Only about 30% of a private club or HOAs operating expenses are more variable in nature and could be possibly related to “efficiency”.

On any given day that a club is open, there is a significant fixed requirement of staffing and resources that are required to operate and maintain conditions for an intentional and determined level of quality & experience. The golf course requires a minimum level of staffing and resources to maintain the agronomic conditions at a chosen acceptable level. There will always be a minimum level of front-of-house service and back-of-house culinary staff to open the club’s F&B amenities regardless of the volume of members that come through the door. There will always be a need for administration, accounting, and human resources. There will always be expenses for insurance, taxes, audit, legal, payroll, software, and hardware. There will always be a need for repairs & maintenance of the facilities to maintain an acceptable standard of quality.

The point here is that the amenities and common area grounds will always require a minimum fixed required level of staffing and resources to keep the operation to member standards, and the reality is that quantified expense consumes approximately 70% of the annual expense. There will never be any material found cost savings in this section of the business.

Incredibly Important Financial Context Members Must Understand – Efficiency Does Not Translate to Profitability In Private Clubs & HOAs

It's very important for members to know that nearly all private clubs and HOAs are federally organized non-profits, and they budget to break-even to $0.00 for daily operations, excluding depreciation expense. These organizations are not intended to, nor are they allowed to, start making profits in operations if they are filing tax returns as a non-profit.

What does that mean? It means it’s extremely important context for members to understand that any “efficiency” or cost saving measure in operations actually does not improve the financial health of the organization - AT ALL. The organization still is required to make $0.00 at the end of the year. If there is a small found expense savings, there is a simply a one-time immaterial dues adjustment so the organization continues to make $0.00.

Non-profit clubs and HOAs have tens of millions of dollars in amenity and common area asset infrastructure to maintain and enhance, so the $0.00 NOI non-profit nature of the organization’s daily operation means that no amount of found “efficiency” or cost saving measure can improve the amenity and common area infrastructure because the business makes no money. Private clubs and HOAs receive resources for amenity and common area infrastructure improvement through non-operating sources of revenues such Capital Dues and Initiation Fees so they may care for the asset footprint.

In terms of true financial drivers of success and taking care of the asset base, the focus for a club needs to be generating significant capital dollars each and every year. Clubs make money in capital income, and they do not make money in daily operations.

(a separate strategic topic to discuss, which is actually critically more important than the tactical & operational nature of this article…..)

Private Clubs Are Different From Other Industries And That’s Okay

Every private club and HOA is different. Different mission, vision, strategies, goals, objectives, price points, and intentional choices.

For many private clubs nationwide, members join them for privacy and to experience a lifestyle with their family & friends to enjoy amenities in a relaxed environment that has less volume and less compaction compared to for-profit industries such as public golf, public dining, public swimming pools, and public tennis or pickleball courts.

Members pay for this experience in their dues and initiation fees, and those fees vary based on the type of exclusive experience they desire. For private clubs, the strategy is often not to maximize utilization, efficiency and output by filling up the tee sheet at the highest rate, booking all the available tennis & pickleball courts, nor entering a packed dining room where there is a 90 minute wait on a Friday night. The organizational model in private clubs is the opposite from public industries that are dependent on maximum output efficiency and volume. Public industries don’t have dues.

Changing The Operational Financial Narrative To A Role Of Responsibility & Accountability

So if clubs and HOAs aren’t necessarily in the “efficiency” business, does that mean we ignore efficiency? NO.

I simply prefer to change the narrative from one of “efficiency” to one of “responsibility and accountability”.

As leaders, we are also stewards of our member’s dues money. We owe it to our members to responsibly manage the operation to the determined standard, and yes, that can include efficiency but it’s more about being responsible and accountable than efficient. At the end of the day, we manage non-profit organizations that have limited resources which barely cover the cost of running the operation.

What can we do as responsible and accountable stewards of member funds? Here are a few strategies for your club to become a more responsible operator:

National Procurement Programs for Economies of Scale Buying Power

Private clubs and HOAs are small business organizations, but that doesn’t mean they can’t receive the same economies of scale purchase benefits as national and global hospitality chain organizations.

There are several programs out there through purchasing partnership companies such as Avendra Clubs, ClubCapital, Entegra, and ClubProcure that allow the club to receive significant cost savings for purchases for food & beverage, agronomy and chemicals, cleaning supplies, office supplies, golf and retail operations, golf course equipment and machines, kitchen equipment, furniture and more.

Best of all – it doesn’t cost you anything to partner with these groups! They are FREE to use!

https://www.clubcapitalgroup.com/

https://www.avendraclubs.com/

https://www.clubprocure.com/

https://www.entegraps.com/golf

Partnership With ClubBenchmarking

The reality is ClubBenchmarking has more data and business intelligence resources for the private club industry than anyone else. They have facts. Many others do not. Facts matter.

For the small annual investment to utilize their services, they will provide the framework to put your club on the correct path. They will help you budget, help your long-term strategy for finances, governance, and human resources, help with capital planning and asset management, and will help you re-align your club's financials and organizational health to be best in class for your club's individual and unique mission.

www.ClubBenchmarking.com

GPS Technology For Golf Maintenance And Common Area Grounds Maintenance

The cost of chemicals and fertilizers to maintain turf at a high standard can be quite significant. By using new technologies guided by GPS, clubs can ensure they are mapping out their chemical and fertilizer applications to be distributed exactly where planned, not duplicated, and reduce overage and waste. These new modern sprayers also come with software to monitor the application and provide satellite imagery of where chemicals and fertilizers are spent.

https://www.deere.com/en/turf-sprayers/

https://www.toro.com/en/product/GeoLink

Effective Water Management

After living in California, I had a newfound appreciation for being a responsible steward to a finite resource: water. There are now thermal drone imagery services and in-ground moisture sensors that can detect areas in need of supplemental water or areas that have adequate soil moisture. The thermal imagery of the drone can be shared with staff members upon the start of their shift to immediately address areas of concern of lack of moisture, or areas where there was too much water applied. At my former 36-hole club in California, we averaged 100 daily single sprinkler head run time adjustments, along with full program adjustments made to the central irrigation system, to maintain quality turf conditions while being responsible stewards of water.

https://www.greensightag.com/logbook/getting-to-know-greensights-thermal-imagery

https://soilscout.com/applications/golf-courses

Contract Review Audits

At any given time, a private club will have numerous contracts with vendors. By utilizing a centralized contract management system, the club can monitor terms and conditions of each contract, certificates of insurance and expiration dates, and review agreed upon contract pricing against actual invoices.

Companies such as VendorTraQ will audit your club’s invoices and billed expenses against contracts to ensure the club is receiving the prices they deserve.

https://vendortraq.com/

Costed Out Staff Schedules & Staffing Budgets

Employee Payroll and Benefits Expense typically represents 55% or more of the club’s entire annual budget. We owe it to all constituencies to effectively manage the club’s largest expense. There needs to be a justified science to staffing.

At our club, our payroll budgets are broken out by every single individual position/employee, by their wage, for the # of hours they work in a week, each week of the year, for all 52 weeks of the year. We also plan for our budgets to record the weeks that have major club events, holidays, marquee golf tournaments and aerification weeks where we will require more staffing or where we will inevitably incur some overtime expense – of which our budget template will automatically calculate the overtime rate to budget for if anyone is budgeted for overtime. We also have a Vacancy Factor, knowing well that a club may never be fully staffed or may have staff callouts.

When it comes to scheduling, our staff schedules are built to automatically calculate the quantified expense of that weekly schedule so managers can reference that schedule against their weekly budget.

The goal here is to responsibly plan the week so management knows if their weekly schedule is in alignment with goals, and if there is any issue before a single person even clocks in. No surprises!

And to no surprise, we rarely have issues of having to explain material payroll variances because our Actuals to Budget are typically very close.

Effective Staff Scheduling - Variable By Day And Cover Counts

Schedules also need to “make sense”. It’s our responsibility as leaders to poke holes in our schedules and ask questions to justify staffing levels. Schedules also need to be driven by business volume and cover counts in food & beverage. We also need management/supervisory coverage during hours of operation.

A good exercise is to use the club’s accounting software to export historical cover counts, by meal period, for every day of the week, for every month of the year.

By utilizing this report, you can establish a predetermined minimum requirement of staffing, and then scale up gradually based on the increasing amount of cover counts. There needs to be a science to scheduling F&B staff for each meal period of the day, for different days of the week.

PowerBI and AI

PowerBI and AI have been around for a few years but it is now making its way into the private club space. The big players in the club software space are introducing dashboards and daily reports that will help club leaders more effectively manage their operation.

Additionally, groups like Club Data Systems are providing a means to extract data from club accounting and time clock systems and provide real-time reports to desktops and mobile phones to club leaders. The dashboard reports from Club Data Systems are best-in-class and provide club leaders with meaningful data to run their business.

AI is also making it into the club space and we can expect to see a lot more of it shortly. I recently witnessed a demo from one company. We asked the AI component of the software “Can you show me the least engaged 100 members and their spending habits by amenity?” It immediately spit out an instant report.

Imagine the good work that can be performed to reach out to members to better understand the reasons for disengagement and how the club can work on programming and services to make their club membership more valuable.

https://www.clubdataservices.com/

Maintenance Work Order Programs

Clubs have tens of millions of dollars in assets, buildings, and equipment to maintain and often over hundreds, if not thousands, of acres of property. Clubs spend hundreds of thousands of dollars annually on repairs and preventative maintenance, and mandatory compliance measures.

Who is still using an Excel file or Post-It notes to manage the maintenance workflow? This needs to stop, if so.

There are numerous maintenance work order platforms out there used by clubs to have a centralized maintenance database, to receive the incoming workflow, to prioritize the urgency, delegate out the project, monitor the time for repairs, send reminders and updates, and provide reporting including work orders submitted to work orders outstanding and tracked labor hours by area.

Some great examples of maintenance programs I’ve used over the years include:

• UpKeep www.UpKeep.com

• MaintX https://www.maintx.net/

• Limble https://limblecmms.com/

Labor Management Systems

For most clubs, the golf maintenance department houses the largest operational budget, the most employees, and the largest dues subsidy allocation. Agronomy leaders are utilizing resources such as ASB Task Tracker & Advanced Scoreboard to help manage and automate their day-to-day work assignments, gain insight to how money is being spent, track hours and job duties, schedule equipment maintenance, communicate effectively and make the best use of payroll dollars.

https://asbtasktracker.com/

https://www.advancedscoreboard.com/

Zero Based Budgets

Taking last year’s actuals and adding 3% isn’t an effective, nor responsible, budgeting strategy. There needs to be a science to the budget process.

The budget is also not something that the CFO produces and hands over to the Department Heads. There needs to be a collaborative effort and partnership to co-create the budget together. Every revenue line item needs to be justified with a why behind the what. Golf revenues are driven by golf rounds and golf round type categories. Lodging revenues are driven by room nights and ADR. Food & Beverage revenues are driven by cover counts by meal period. Payroll budgets are driven by individual headcounts and needs, and actual hours necessary.

When there is co-creation and partnership, there is ownership and accountability.

Forecasts and Reforecasts

Throughout the year, things change. Market conditions may change. A club must have the systems in place to allow for proactive measures to reforecast and pivot, not be reactive and make excuses.

A club must have financial systems in place to quickly (immediately) reforecast with YTD Actuals + Forecast Future Months – all with a roll-up summary to accurately predict how the year will shape up.

Remember, nearly all private clubs and HOAs are non-profit organizations. There is no magical slush fund of extra operating cash or wiggle room in the budget to cover operational shortfalls. Dues are only set to barely cover the expected annual costs of the organization. We have a responsibility to proactively manage the operating budget to get the organization to year-end goals.

Multiple Bids

We also owe it to our member constituencies to perform our due diligence for vendor contracts, property insurance, operating expenses, and capital projects. This means we need to (not should) solicit multiple bids to be prudent stewards of our member funds. This also means we should challenge vendors on the science to their proposals.

For those of us operating high-end clubs, there can often be market perception outside the gates that “they will pay because they have money”. Not an acceptable philosophy. Push back.

Constant, Structured Communication

Our job as leaders is to have effective and structured mandatory communication.

For those that have ClubEssential software at their club, one feature I really enjoy is their automated emailed reporting. Reports in ClubEssential (income statements, inventory, custom reports, sales reports, etc) can all be programmed to automatically be sent out to the management team daily. There is no longer an excuse that the accounting team didn’t produce a report and send it over to the managers. It’s all automated now.

When a Department Director signs up for their job, what it really means is they also signed on the dotted line to communicate to their team. This means daily lineups, digital communication platforms, weekly staff meetings, mandatory development and education to teams, mandatory financial reviews and consistent 1:1’s. Everyone should and needs to know where they stand. If it comes down to an annual review and our team is just then finding out about successes and deficiencies, then we have failed as leaders.

Quantifying What Inefficiency Really Means

On average, about 70% of a private club’s operating budget is a relatively fixed expense. 30% are expenses that could be related to efficiency.

Let’s say that 1/10th of those 30% of expenses related to efficiency were completely mismanaged by our management team and we were completely wasteful in a manner that went against the mission and operating goals of the club.

10% mismanagement x 30% of expenses related to efficiency = Only 3% of the entire business organization’s expense.

The amount of expense that could be “inefficient” and inappropriately wasteful would represent 3% of the annual expense.

Who’s job is it to deal with that 3% inefficiency? It is my job to deal with it….meaning club leadership.

It is not the Board’s responsibility to deal with the 3% inefficiency, and it is not the Finance Committee’s responsibility to deal with the 3% inefficiency. It is Management’s responsibility to address the inefficiency.

This industry has made great progress in elevating education, transparency, and governance to focus Boards and Finance Committees to look out the front windshield and stop spending all their time looking at the rear view mirror. The rear view mirror is tiny for a reason.

Spending precious Board and Finance Committee time on the 3% is poor governance. It’s tactical in nature versus strategic in nature, and at the end of the day it does not improve the organization. It is the club management’s responsibility to address the 3% inefficiency.

Being Efficient Really Means Being Responsible & Accountable

Private clubs aren’t exactly in the efficiency business, but they do need to be operated in a manner that is responsible and accountable.

At the end of the day, the club is a non-profit organization with limited dues resources to cover annual expenses. Any found efficiency will not financially improve the organization’s bottom line, but we do need to be a responsible and accountable stewards of our limited funds.

Clubs and HOAs do not make any money in operations. They make money in capital dues and initiation fees, which is necessary to cover the depreciation of the asset base and fund the eventual replacement of assets in the future.

Ultimately, capital income growth is significantly more important as it fuels the true driver of financial success, but that also doesn’t mean we ignore being accountable to being a responsible operator of the daily non-profit operation side of the business.