There is an interesting discussion occurring on LinkedIn concerning food cost. Basically, the question is whether clubs should make a profit on the food and beverage area. Putting together the numbers for our annual publication Clubs in Town and Country, the issue is highlighted. Generally, neither city nor country clubs make a “profit” in the food and beverage department. The numbers for the 2011 edition reflect a loss of about 15% for both city and country clubs. However, this terminology is misleading.
As I have stated a number of times, the only ones who pay for the club are the members. Country clubs are, or should be, in the dues business. Whether members pay through user fees or dues, the result is the same. Looking at it this way, clubs make money on food and beverage as long as operating income for the club as a whole exceeds operating expenses. Frequently, you hear the expression that dues are subsidizing food and beverage. Its ironic that you don’t hear that phrase in other departments. When was the last time you heard someone say that golf was subsidized by dues. It is not a subsidy but rather an alternative way of paying for the service.
However, this is not an excuse for underperforming. Constant review of costs and more realistic pricing has become the norm in most clubs improvements can be seen in the department. Gross profit has improved over the years. Unfortunately, the state of the economy has reduced the usage of clubs particularly in the banquet area, which generally is the most profitable. Anecdotally, we have heard from managers that the number of banquets have gone down by about 20% and the amount spent on those had gone down about 20% over the last few years. With the recession over(?) and the economy improving, clubs are hoping to get some of that business back. What have you seen in your club? Was this holiday season an improvement over last year?
Never base your budget requests on realistic assumptions, as this could lead to a decrease in your funding.
-Scott Adams, Dilbert
Too often, members will forget that a club has a business as well as a social side to its operations. The members want improvements and the club spends the money. The economy over the last few years has caused management to focus on the business side and often the members are not happy. Clubs must learn to manage the members’ expectations. Unfortunately, the days of assessing a member for any shortfall at the end of the year is a distant memory. What many members may forget is that ultimately, no matter how funded, they end up paying for the club and its operations. While the federal government is on a record pace to spend money, (the 2011 budget has a projected deficit of $1.471 trillion), a club does not have the option of spending more than it takes in, at least over the long haul.
The financial health of the club cannot be ensured without a detailed knowledge of the costs and revenues involved. The financial software that is prevalent in the industry can provide more detailed information than ever before (and maybe more than we want). Information overload is a real possibility but in today’s environment, it is critical to have and use the tools available. One tool to assist management is through the establishment and use of a budget. An effective budget process is critical to projecting and monitoring operations. It is as necessary to a club as it is to a Fortune 500 company. For many, it can mean the difference between financial stability and failure.
Effective planning requires both a long and a short-term outlook. Finding cash for the next payroll is as critical as financing the next renovation. Long term planning entails setting the club objectives and is part of an overall strategic plan. Short term planning involves cash flow and ensuring revenue is sufficient to operate the club on a daily basis at a level the members want and for which they are willing to pay. This is not always the same thing.
Most clubs have finished the budget process for the year. How did your club make out? Are you expecting additional cost? Will you need to raise dues? Do you believe you have a good process? How can you make it better?