Key points covered in this article:

  • Private clubs are experiencing a surge in demand, with waitlists and initiation fees significantly increasing post-pandemic, but many clubs lack fully funded long-term financial plans, leaving them vulnerable to economic downturns.
  • Proper management of board-designated funds, including clear documentation, segregation from operating cash, and regular reviews, is essential to maintain financial stability, transparency, and member trust.
  • Common pitfalls include misclassifying funds, neglecting formal resolutions, commingling funds, and failing to allocate interest or investment earnings, all of which can undermine financial reporting and strategic goals.

Private clubs are continuing to boom. The New York Times describes it as a “members-only mania,” where waitlists in urban areas have become the norm. For golf clubs, nearly half (46 percent) have reported active waitlists—some up to seven years—and the median initiation fee has more than doubled post-pandemic, up from $25,000 to $56,000.

This demand would have been hard to imagine just over a decade ago. The market downturn, overdevelopment, and shifting demographics had clubs struggling to stay afloat. But even with the industry alive and well, the constant undercurrent of economic uncertainty is nagging at board leadership. When will the next downturn occur, and how should clubs prepare?

According to Club Benchmarking’s Governance Survey, only 34 percent of respondents (board members and club managers) believe that their long-term financial plan fully funds the club’s projected needs. Meaning, approximately two-thirds of clubs could be unprepared when the market turns.

Board-designated funds are one way to address this uncertainty. Unlike donor-restricted funds, which are held with specific conditions, board-designated funds are unrestricted assets the board reserves for planned purposes, like emergencies or unforeseen circumstances. They also can be allocated for future projects, such as adding a new amenity, or used to support community outreach, like providing scholarships to youth players. They’re a strategic way to give clubs both the financial flexibility to pivot when needed and the stability to stay anchored when the economy turns.

To effectively manage board-designated funds, clubs must have a thorough understanding of how to implement formal policies and procedures to govern their use. Without adequate controls in place, clubs can find themselves drifting into compliance issues, overstating operating availability, or compromising the credibility of the club if financials show they’re unreliable.

The following article provides some common mistakes in accounting for board-designated funds and offers recommendations for setting clear guidelines, tracking them accurately in accounting records, and aligning their use with strategic priorities, all while keeping transparency and member trust top of mind.

Confusing Board-Designated Funds with Donor-Restricted Funds

Generally speaking, there are two primary buckets of funds: restricted and unrestricted. The restricted bucket is reserved solely for the purpose of the donor’s intent; whether that restriction is permanent or in place for a certain period of time, the terms are non-negotiable.

The unrestricted bucket, on the other hand, is a pool of money that may have stemmed from an internal operating surplus, initiation fees, proceeds from an asset sale, or any number of other sources, and then earmarked by the board for a specific use. Under U.S. Generally Accepted Accounting Principles (GAAP) and its guidance in FASB ASC 958, these funds are classified as unrestricted given the board’s authority to change their purpose at any time.

Mixing up these buckets can lead to compliance and transparency issues. Board-designated funds that are misclassified as restricted can misrepresent the club’s financial position, making it look as if the club has less liquidity and flexibility that in actually does. When in reality, those funds can be reallocated at any time. In some cases, this can raise red flags among auditors, as well as spark questions among the membership.

On the flip side, donor-restricted funds that are reported as unrestricted can cause members to see a larger balance than truly available and not realize how much is already committed to a specific donor-intended initiative. If they’re not properly classified and accidentally used outside of their intended purpose, the club could breach their fiduciary responsibility and be exposed to legal complications.

What we recommend: Present board-designated funds as a clearly identified subset of unrestricted net assets on the balance sheet, with accompanying notes that explain their purpose, source, and the board’s authority to reassign them. These funds do not require a separate set of financial statements, but they should be tracked in detail through internal schedules or reports so leadership can monitor activity and balances.

Failing to Document Board Resolutions

It’s not uncommon for board members to connect on club-related matters outside of the boardroom. However, formalizing decisions on the fairway or in inboxes is not advised. To ensure proper governance, major actions taken by the board need a formal board resolution.

Budget approvals and financial commitments, along with policy changes and other significant decisions, warrant formal board resolutions to ensure legal compliance and fiduciary responsibility. And in some cases, this means reconvening to properly document actions that were already discussed informally.

The primary purpose behind an official paper trail is to hold leadership accountable. It’s a way to track that decisions were made in the club’s best interest. Documenting what was approved, why it was approved, and under what circumstances alleviates any misinterpretation and reinforces trust, especially during an audit, a leadership change, or when a member asks a question.
What we recommend: If a formal policy doesn’t exist, creating one is important. Within it, define the approval process for board resolutions, outline the documentation requirements, and specify the parameters for reallocating or spending the funds. Each designation should be recorded in the official minutes and through a formal board resolution, noting specific amounts, intended uses, and any applicable conditions. Doing so will leave a clear audit trail and strengthen the club’s internal controls.

Commingling Designated Funds with Operating Cash

Once the board has allocated unrestricted funds to serve a specific purpose, they need to be segregated out from operating into a subaccount and tracked through their entire lifecycle. If designated funds get pooled in with general operating cash, it can make it difficult to monitor or report how they were used. Without any oversight, the funds could get depleted altogether.

Commingling funds can really damage internal controls and wreak havoc on financial reporting, so be sure to track board funds accurately in the accounting system. It also makes it challenging to assess whether the club is honoring its financial commitments or not.

What we recommend: To streamline controls, create dedicated general ledger accounts or subaccounts for board-designated funds and reconcile them monthly. Tie every inflow and outflow to specific board resolution so those funds can be tracked separated from start to finish. That way, the tracking doesn’t only show numbers in a ledger; it threads back to the original plan for those dollars.

Letting Designations Go Years Without Review

One of the costliest mistakes a board can make is letting years go by without reviewing its fund designations. Needs change, and costs escalate. And an economy shift could affect revenue streams overnight. That capital project the board earmarked funds for two years ago? It might not be a priority anymore. Or worse, the original budget might not even come close to covering what it actually costs now.

Given how capital-intensive private clubs are, a “set it and forget it” approach is too risky. Those funds would be better served elsewhere in the organization if they’re just sitting there, untouched and unexamined. The club’s long-term viability depends on staying nimble with these decisions.

What we recommend: Be sure to make the review of board-designated funds a standing item in the annual budgeting or audit preparation process. Discuss whether the designations still serve in the club’s best interest and serve to reinforce the club’s strategic direction.

Diverting Funds from Their Original Purpose

Even when designations are made properly, sometimes clubs can spend funds in ways that deviate from the original intent. Or they do so without formally updating the designation. Using designated funds as a balm when cash flow gets tight or repurposing them without the proper approvals can create a unique set of issues that cause breakdowns in accounting and damages member trust. This could have an effect on capital projects or emergency funds for years down the road.

What we recommend: Outline key internal procedures to follow before using designated funds for purposes other than originally stated. Be sure to train appropriate staff and board leadership on the new financial policies to ensure everyone is on the same page.

Keeping Members in the Dark About Fund Activity

Private clubs rely on the confidence of their membership. And nothing fractures that trust faster than when members feel like they’re left in the dark about where their money is going. Whether it’s rerouting funds without authorization or making capital improvement choices without any input, members start wondering what else they don’t know about.

Clubs must ensure a level of transparency that reinforces trust. Members value communication, consistency, and culture. So, while a lack of transparency may seem like a minor issue at first, it’s one of the most common complaints among members, one that could result in member dissatisfaction. Further, it could damage the club’s reputation and potentially have a direct impact on the bottom line. An analysis showed that a company can lose 30% of its value when it loses trust.

What we recommend: Even if decisions are backed with good intentions, consider implementing a consistent communication schedule that includes updates on board-designated funds with visuals that track growth and use of these funds over time.

Neglecting Interest and Investment Earnings Allocation

Clubs that invest board-designated funds should account for interest and investment earnings generated from those accounts. Even a conservative 3% return on a $1M reserve yields $30K, which could be enough to offset smaller capital improvement projects or offset increases in dues.

Without this allocation, growth is underreported. Clubs should track and attribute earnings to the appropriate fund account to accurately show available resources to the membership.

What we recommend: Allocate earnings proportionally to designated funds based on balances. Ensure your investment policy includes guidelines for how income and appreciation are handled.

Planning for What’s Next

Leveraging board-designated funds in the height of the club boom can be an effective financial strategy to plan for what’s next. When managed well, these funds can be used to support capital planning, stabilize dues, or provide future contingencies.

By avoiding these common mistakes, clubs will build the financial resilience and member trust they’ll need when the market turns.

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With many years of experience serving private clubs, our dedicated hospitality team offers you the comprehensive accounting, management, and business advisory services you need. Contact us today. 

This article was featured in the September/October edition of BoardRoom magazine.