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What are the financial indicators that the club leadership should monitor to stay strong?
Canaries in a coal mine were the early-warning system that saved miners’ lives before technologies for detecting noxious gases came along. Just as careful miners took caged canaries underground with them, club directors are wise to protect the club by implementing early warning tools—or Key Performance Indicators (KPIs).
Stephen Johnston, the founder of Global Golf Advisors and a former KPMG senior auditor for major accounts, explains, “The number one duty of every club director is to protect the assets of the club.” To Johnston, the canary to be watched is full member equivalents (FME) of a club. FME represents the total annual dues amount divided by the amount of a full-member’s annual dues. Johnston warns directors that when FME metrics begin to slip, directors should beware.
Future attrition rates and the successful conversion rate from potential new members follow the FME metric. Attrition signals retention success or concern while conversion rates presage new member recruitment. Keep these KPIs singing a happy song.
Successful membership recruitment follows a 10 percent conversion rate—from bona fide member lead to accepted new member. Therefore, this ratio instructs the board and management that the roster of prospective members must be ten times the number of membership openings. Says Johnston, “If you want to add 30 new members, you will do well to develop at least 300 trustworthy leads.”
In addition to FME metrics, Johnston emphasizes the power of the cash flow statement. For a club to be truly economically sustainable it must generate revenues adequate to pay the club’s bills and fund its future capital needs. Johnston advises club directors that the annual “spend” on capital assets should be 7 to 9 percent of annual gross revenue.
The impact of the recessionary cycle caused most clubs to fall behind on capital replacement and maintenance so the cash available to catch up on deferred capital maintenance is a critical early indicator of future financial stress or security.
For the miners, early-warning was the difference between life and death. For private clubs, monitoring early-warning KPIs is similarly crucial.