Budgeting in the proper context
ECLUB NEWS |
Budgets are the cornerstone upon which managing the business side of private clubs has always been built. Often treated like the Ten Commandments, they have been the tools that boards of directors, chief operating officers and staff members have lived and, in too many cases, died by over the years. Undoubtedly the great recession has intensified the laser-like focus on the budget and budget methodology, but too often there appears to be a critical link missing in the budget process—strategic planning.
Strategic planning has been one of the most significant trends to engulf the private club world in the last decade. Everyone talks about it, many are doing it, but too few are connecting the dots from their strategic plans to the daily operation, management and funding of activities at their clubs. How often has a grandiose goal appeared in a club's strategic plan that was never supported by a specific commitment to fund the training or action step that is required to achieve that goal? The often quoted goal, "to be recognized as the finest golf course in the city of Gotham," is rarely supported with a realization that it may require significant increases in the golf course maintenance budget of the club.
Take another view of this misalignment: When department heads are asked to prepare their budget submissions for the year (hopefully, the assumption that they are actually involved is realistic), are they aware of the elements of the written strategic plan that speak directly to their departments? Does the golf course superintendant know that he needs to prepare a budget that supports the membership's aspirations for the golf course? At far too many clubs, the answer is no.
So where does the budget fit in terms of the planning tools in use at a club? Is it just a guess at how the club will do this year, assuming the stock market does not tumble and the weather is agreeable? Or is it an annualized version of the strategic plan that will provide aligned guidance for management during the financial year of the club? Connecting the budget to the strategic plan requires another step—a business plan.
If a club takes the time and applies the effort to craft a business plan each and every year, the sentiments expressed in the strategic plan can be disseminated through all aspects of operations and to all members of the staff. What does the business plan look like? Typically it should have some version of the following structure:
- Executive summary
- Background and history
- Goals and objectives
- Market analysis
- Marketing plan
- Organization of management
- Financial plan
- Critical risks
Appendices might include such documents as:
- Compensation philosophies
- H2 visa detail
- Detailed financial worksheets with budget drivers such as headcounts, cover or round forecasts
- Capital expense plan (10-year rolling)
- Agronomic plan
- Roster/schedule of primary filings
- Board orientation re business risk
Building a business plan requires each department head to build the component for their department. If each department follows some version of the structure suggested, then cumulatively the club will have a business plan that aligns strategy, operations and, ultimately, financial plans. Frankly, it is difficult to imagine anyone being able to prepare a realistic budget without considering the relevant portion of the strategic plan for goals and objectives. How can a club have the best golf course in Gotham if it does not conduct and document its market analysis of the city? If a club cannot express its marketing initiatives for its department (e.g. to recruit new golfers and engage existing ones), how can it properly determine the costs for the year?
While working through the budget process, visualize a continuous flow of information between the written strategic plan, mission statement, business plan and budget. With so much time, money and effort spent to develop the strategic plan, it should not be wasted due to failed implementation. Ensure the annual business plan supports the mission statement that emerged from the strategic planning process. If the budget is driven by the business plan, the loop between these elements will likely be closed and the club stands a better chance of realizing its strategic goals.