the executive dashboard

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2016 Club Controllers Conference

The Executive Dashboard: Benchmarking as a Management Tool

•Mission and Vision

• Common Framework – The Common Financial Model of Clubs and Key Performance Indicators

• Gross Margin• The Dues Engine• Capital Generation (ROI/ROE)

Standardized measures foster predictability!

Agenda

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Healthier clubs, more empowered

managers, and more strategic

boards result by elevating facts over opinion

Why

HowConnecting

each club and manager with the wisdom of the industry

WhatThe club

industry’s single, standardized,

centralized data-sharing platform

Our Mission and Vision

• CMAA clubs form a $20+ billion industry. The largest single club is on the order of $95 million.

• About 3,000 clubs X 11 people on board on average= 33,000 people “governing” clubs.

• Ineffective governance is pervasive in clubs.

• There has been no standardized set of measures for clubs.

• Standardization can have a significant impact on governance.

Observations

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Critical Questions

• How does a Board understand the club business?

• How do Board members come to an aligned view of what drives clubs financially and operationally?

• What metrics should be used to monitor the performance of a club?

• “In God We Trust – All others bring data” – E. Demming

Our Mission and Vision

Dues aretoo high!

The golfersget everything!

We needMORE

banquets!

We shouldmake money

like a restaurant

We must change and unify the dialogue

• We spend too much on labor

• What do all these people do?

• My Business = Club Business

• I already know what needs fixing

• We should make money on F&B

• No dues increases on my watch

• Our club is different

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What are the chances..?

• The group has an innate common view of Governance?

• There is a collective understanding of what financial measures are most critical to a private club?

About Clubs: Governance

We can’t change the governance model, but we can change HOW we work within it We can’t change the governance model, but we can change HOW we work within it

A Common Framework

Financial Modeling and

Key Performance Indicators

Changing the Dialogue

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Valuation Measures

Market Cap (intraday)5: 5.33B

Enterprise Value (Mar 11, 2015)3: 6.80B

Trailing P/E (ttm, intraday): 14.43

Forward P/E (fye Dec 31, 2016)1: 9.69

PEG Ratio (5 yr expected)1: 0.24

Price/Sales (ttm): 0.91

Price/Book (mrq): 2.08

Profitability

Profit Margin (ttm): 6.89%

Operating Margin (ttm): 8.73%

Valuation Measures

Market Cap (intraday)5: 5.33B

Enterprise Value (Mar 11, 2015)3: 6.80B

Trailing P/E (ttm, intraday): 14.43

Forward P/E (fye Dec 31, 2016)1: 9.69

PEG Ratio (5 yr expected)1: 0.24

Price/Sales (ttm): 0.91

Price/Book (mrq): 2.08

Profitability

Profit Margin (ttm): 6.89%

Operating Margin (ttm): 8.73%

“Measuring companies” in the outside business world is consistent

Changing the Dialogue: A Common Framework

What is the Gross Margin in the club industry?

It all starts with Gross Margin

80% 15%

Changing the Dialogue: A Common Framework

Revenue 100%

COGS 20%

GP 80%

Fixed Exp. 60%

Op. Profit 20%

Revenue 100%

COGS 85%

GP 15%

Fixed Exp. 10%

Op. Profit 5%

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A common language asking and answering the right questions is needed in the club industry

• What if every club measured the same key measures?

• Overcoming the “Cult of Personality”?

• Would it improve club governance?

• Would it help all clubs, especially challenged clubs?

Common Industry Framework

Identify and develop industry standard measures that are predictive of performance

- Gartner

1. Separation of Operating and Capital Ledgers – separate “bottom line” result for each

o Initiation Fees, Capital Dues/Assessments, Debt Service Assessment, Investment Income = Capital Income

o All departmental revenue and expenses = Operating Revenue

2. The Law of Commonality – Clubs raise/use money from the same sources and on the same things regardless of size, quality or location

3. The Law of Commonality leads to a very logical, business and strategic view of where the money to run a club comes from and where it goes

A Common Framework - The Core Concepts

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The Financial Insight ModelA Common Framework

Operating Ledger Capital Ledger

Revenue – Dues, Ancillary Dept.

Cost of Revenue

Gross Profit

Fixed Expenses

Course Maintenance

Buildings Maint. & Ops

G&A

Fixed Charges

Sports, Recreation, Youth

Net Operating Result

Total Capital Income (Initiation, Capital Dues/Assessments, Investment Income)

Adjusted for Operating Result

Less Lease Expenses

Net Available Capital

Net Available Capital is the amount available for Capital Investment, Debt Reduction and Increasing Reserves

Net Available Capital is the amount available for Capital Investment, Debt Reduction and Increasing Reserves

Financial Sustainability

• What does Financial Sustainability mean?

• Can a club achieve Financial Sustainability with insufficient dues revenue and/or insufficient capital income?

If your current operational results and capital generation were continued for the foreseeable future, would the club be able to adequately fund all amenities and member experience, and be able to re‐invest back in the club every year to replace depreciating assets and facilities

If your current operational results and capital generation were continued for the foreseeable future, would the club be able to adequately fund all amenities and member experience, and be able to re‐invest back in the club every year to replace depreciating assets and facilities

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Executive Dashboard Q&A

Key Questions Key Performance Indicators

OPERATING FINANCE

CAPITAL GENERATION

OPERATIONS

MEMBERSHIP

DEBT

CB Executive Dashboard


Area of Focus

Key QuestionsKey Performance

Indicators

OP

ER

AT

ING

FIN

AN

CE

What is our operating revenue? Operating Revenue

How much money is available to coverfixed operating expenses?

Gross Profit(aka Available Cash)

Does our revenue mix produce adequate margin?Gross Margin (Gross Profit toOperating Revenue Ratio)

Is the dues component of revenue suitable? Dues to Revenue Ratio

Do we produce enough money to fund operations?Do operations draw money from or produce money for capital?

Operating Bottom Line(aka Net Available Cash)

CA

PIT

AL

G

EN

ER

AT

ION How much capital income did we produce? Capital Income

How much capital is available after adjustingfor operating loss or gain?

Net Available Capital

Do we produce sufficient capital?Net Available Capital Ratio(to Operating Revenue Ratio)


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Area of Focus Key QuestionsKey Performance

IndicatorsO

PE

RA

TIO

NS Are we staffed at a level that balances financial results

and member service? Are we efficient? Payroll to Revenue Ratio

What is the financial impact of F&B on the club?F&B Profit/Loss to Gross Profit Ratio

ME

MB

ER

SH

IP Are dues rates and member count optimally balancedto produce adequate dues revenue?

Dues Engine (Full Member Equivalents & Full Member Dues)

What is the level of member attrition? Full Member Turnover

DE

BT

What is the burden of debt on our membership? Debt per Full Member Equivalent

How leveraged is the club? Debt to Operating Revenue Ratio



A clubs KPIs alone gives you only your values

A Benchmarked KPI • Defines your value AND relative position• Confirms how peers & the industry behaves• Helps explain the impact of choices and decisions made• Not about good/bad – tells a story about the club

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Operating Finance KPIs

Key Question:Does our income mix provide adequate margin?

KPI: Gross Margin

Gross MarginGross Profit divided by Operating Revenue

•Gross profit funds the fixed expenses of the club• Dues is the driver of gross profit • Directly correlates to Net Operating Result• The Financial Insight Model measures the Sources and Uses of Gross Profit

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Membership Dues + (F&B Net = F&B Rev. – F&B Exp.)+ (Rooms Net = Rooms Rev. – Rooms Exp.)+ (Other Net = Other Op. Rev. – Other Op. Exp.)+ (Golf Ops Rev. – (Golf Ops Exp. – Golf Ops Labor)+ (Yachting Net = Yachting Rev. – Yachting Exp.)+ Ancillary Sports Revenue (AFR)

= Gross Profit

Sources of Cash are Clear, Simple and consistent for all clubs

The Financial Insight Model – Gross Profit

Gross Margin

45% 50% 56%36% 33% 23%

Dues Ratio

F&B as % of Inc.

Operating Result ($131,000) $38,000 $214,000

55% 60% 64%

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Note:What knobs do you really have to generate cash? F&B is not a cash generator in most clubs

DUES

GOLF OPS NET

The Financial Insight Model

Gross Profit SourcesAverage Club

Uses of Cash are Clear, Simple and consistent for all clubs

Gross Profit- Course Maintenance Expense- Golf Operations Labor- G&A Expenses- Buildings and Maintenance Expenses- Sports (AFR) Expenses- Fixed Charges (Prop & Liab, RE and Prop Taxes, Interest)

= Operating Bottom Line

The Financial Insight Model – Fixed Expenses

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Overhead

Amenities

40%

Gross Profit UsesAverage Club



56% 61% 65%

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Financial Sustainability

…would the club be able to adequately fund all amenities and member experience…


56% 60% 63%49% 53%

Gross MarginDues Ratio 45%

Is it important to fully understand your club’s gross margin, its Sources/Uses, and whether the result is an operational surplus or deficit?

How else would you ever know if you have a revenue/margin problem or an expense problem?

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Clubs with 18 holes and clubs with 36+ holes use thesame proportion of Gross Profit on CM

Gross Profit Uses

36 – 108 Holes 18 Holes

Country Clubs Golf “Only” Clubs

Country Clubs and Golf Clubs use the same proportion of Gross Profit on CM + Non‐Golf

Gross Profit Uses

Country Clubs Golf Clubs

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The Dues Engine

Key Question:Is the Dues component of income suitable?

KPI: Dues Ratio

The Dues Engine

Number of Members Dues per Member

Dues Revenue $$

What is the right optimization for your club?

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Operating Revenue Sources

Dues is the largest revenue component. It is also has the highest gross profit.

Note the second largest revenue source. But does F&B help fund club fixed expenses?

Dues is the largest revenue component. It is also has the highest gross profit.

Note the second largest revenue source. But does F&B help fund club fixed expenses?

Dues Ratio

Gross Margin 54% 59% 64%

FMEs 377 472 473

Dues $6,390 $6,580 $9,970

40%Non Golf

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Financial Sustainability & Dues Revenue



56% 60% 63%49% 53%

Gross MarginDues Ratio 45%

Member Count Member Dues OperatingResult

Value Proposition

Balance

Balance +

Imbalance

Exclusive

The relationship among dues, members and results often correlates to the value proposition of a club

Dues Engine

The Dues Engine

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Boards need to understand the Financial FrameworkBoards need to understand the Financial Framework

Dues Rate and Member

Count• Dues Engine/Dues Ratio

Gross Margin • Above or below norms

Fixed Expenses

Operating Result

• Surplus/BE/Deficit

• Supported by GM?Reflects strategy

Member Dues

The Dues Trap

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There is no substitute for Dues Revenue

Higher F&BMinimums

Weddings & Banquets

You can’t cook your way out of a weak dues engine

Capital Income

The Dues Trap

What is the most dangerous question clubs ask each other every day?

“How much are your Dues?”

vs. understandingHow much Dues revenue does your club require?

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The Dues Trap

• “We haven’t raised dues in 5 years”• “A dues increase? - What went wrong”• “Not on my Watch”• “Finding new members is really hard”• “We have an Op Assessment every year”

• “We haven’t raised dues in 5 years”• “A dues increase? - What went wrong”• “Not on my Watch”• “Finding new members is really hard”• “We have an Op Assessment every year”

• How much Dues Revenue do we need?• What is the right balance of members & dues• Train your members – raise dues every year• There is no substitute for dues revenue• Maintenance is easier than rebuild

• How much Dues Revenue do we need?• What is the right balance of members & dues• Train your members – raise dues every year• There is no substitute for dues revenue• Maintenance is easier than rebuild

From:

To:

DuesMembers

Capital Generation KPIs

Key Question:How much capital income did we produce?

KPI: Net Available CapitalKPI: Net Available Capital Ratio

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Capital Generation

Capital Funds

BuildingsFurnishings

Course RehabFacilities

Blood Flow Skeleton

Train your membership to understand the difference

Operating Funds

Lights/HeatEmployeesFood/BevSupplies

Capital Generation

SOURCESOperating Funds

SOURCESCapital Funds

SubscriptionF&B Revenue

Golf Ops RevenueFitness etc.

RevenueOp Assessments

Entry FeesCapital DuesAssessments

Asset SaleDebt

Not Sustainable

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Total Capital Income

346 435 642

$15,000 $55,000

8% 6% 4%

FME

Initiation Fee

Turnover

$5,500

Available Capital Ratio 3% 10% 20%

Financial Sustainability and Capital Generation

Capital Starved Capital Rich

…be able to re‐invest back in the club every year to replace depreciating assets and facilities…

…be able to re‐invest back in the club every year to replace depreciating assets and facilities…

Operating Result $121,000 $234,000($51,000)

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Attributes Capital Starved Clubs Capital Rich Clubs

Initiation Fee

Operating Result

Member Count

Dues Rate

Dues Ratio

Culture/Investment Orientation

Expense Based / Reactive

Value Based / Proactive

Summary

Capital Investment

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• Examining the “For Profit” marketplace for hints can be insightful

• Capital is “Deployed” to managers to deliver a product/ service to market with the intent to deliver a return on the capital deployed…..

Higher risk will have higher return Lower risk will have lower return

• The Return on Equity is the annual profit made delivering the product/service in proportion to the amount of Equity (owner’s capital) invested in the business that year

• ROE = Profit / Owner’s Equity

ROE

Sectors ROE %

Basic Materials 6.365

Financial 8.202

Industrial Goods 11.603

Utilities 11.858

Consumer Goods 17.549

Services 19.673

Healthcare 19.863

Technology 21.171

Return on Equity

• ROI is used to compare different project investments within a project portfolio. The project with best ROI is prioritized. Wikipedia

• One invests money expecting a return through increased profit (either as a result of more revenue, decreased expense or some of both)

• The increased profit in proportion to the investment is the Return on Investment

• ROI = Increased Profit / Amount Invested in Project

ROI

Return on Investment

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The Investment – Return Cycle

More Capital Investment Drives Broader Amenities and Nicer Facilities Drives Great Prospective Member Demand Drives Higher Initiation Fees and More Members Drives Greater Capital Income (Initiation Fee and Capital Dues)

= Higher Return on Invested Capital

What is your Return on Equity?

ROE = Total Capital Income / Total Assets (Unrestricted Net Assets)

The Investment – Return Cycle

Capital Starved

Capital Rich

Capital Starved clubs have very little available to invest – let’s discover why.

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Capital Starved Clubs Capital Rich Clubs

25th

PercentileMedian

75th

Percentile25th

PercentileMedian

75th

Percentile

Unrestricted Net Assets (000’s)

$1,125 $3,701 $6,965 $6,454 $13,384 $24,176

Total Capital Income (000’s)

$44 $214 $410 $993 $1,641 $2,806

Return on Equity 4% 5.8% 5.9% 15.4% 12.3% 11.6%

Overall Return on Equity 5.2% 13.1%

Return on Equity = Total Capital Income / Unrestricted Net Assets

Return on Equity: A Logical Measure

Types of Investment

• Maintenance and Replacement Replacing HVAC Equipment, Refurbishing Parking Lot, New Roof

• Expanding and/or Improving Existing Amenities Larger Fitness Center, Larger Clubhouse, More Golf Holes, More Slips and

Moorings, New Bunkers, New Greens

• Adding Amenities Fitness Center in a Club without one

Spa

Golf Learning Center

Casual Dining

Investment Productivity

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Measuring Return on Investment

• Goal is to create Capital Investment - Capital Income momentum

• Return is Higher Initiation Fee, More New Members and Higher Retention (as a result of broader appeal to more prospective members)

• Higher Initiation Fee and Capital Dues Income is the return on previously invested capital!!!

When is the last time you raised your Initiation Fee?

• The sum of all historical investments manifests in Return on Equity

Investment Productivity

• How much should be invested? The median in Capital Rich clubs is 10% of Operating Revenue

• Measuring Investment Productivity Productive investments drive increased Capital Income

• Which projects are likely to be productive? Those that drive broader prospective member interest and more entering

members

Those that allow for an increase in Initiation Fee

Those that allow for an increase in Capital Dues (or Assessments) from members – they are more satisfied and see the increasing momentum

• Unrestricted Net Assets (possibly Total Net Assets) should be increasing every year – is it?

Circling Back to Learning Goals

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Summary

Identify and develop industry standard measures that are predictive of performance

Talking about the variation in food cost from last month to this month IS NOTpredictive of overall club performance

• A common language NEEDS to exist in the club industry.

• We can’t change the Governance Model but we CAN change how we work within that model.

• Best Practice >>> Best Performance

• It’s up to us to Change the Dialogue

• These Executive Dashboard KPIs enable predictive performance.

Summary

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Q&ARuss Conde

[email protected]

the executive dashboard

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