Funding course improvements

[Mike McGuire]

I hope this is not OT because unless you can figure out how to pay for course improvements (private member owned club)  no new or improved architecture happens.

I need help -

I belong to a club with a cool Langford nine that could be outstanding with minor to major restorations. We have done a few things the last two years with a total of $20,000.

As a non accountant, and not real good business man,  in finance meetings I get beat up by the bean counters who are in control.

My first question is how much attention should be given to depreciation ?
 

[Phil_the_Author]

On balance it should be 10% depreciation and 90% appreciation... 

[Patrick_Mucci]

I hope this is not OT because unless you can figure out how to pay for course improvements (private member owned club)  no new or improved architecture happens.

Mike, that can be a double edged sword.

I don't know if you recall Ari Techner's dilema where elements within the club wanted to alter the course absent the supervision and blessings of the consulting architect.  So sometimes not having the money to alter the course is a good thing.


I need help -

I belong to a club with a cool Langford nine that could be outstanding with minor to major restorations.
We have done a few things the last two years with a total of $20,000.

As a non accountant, and not real good business man, in finance meetings I get beat up by the bean counters who are in control.

My first question is how much attention should be given to depreciation ?

In my limited experience, "depreciation" was never part of the discussion relating to restoration/renovation/modernization.

I've found that members tend to camoflage their objections to golf course projects.
Almost universally, the real issue is money.

I think you have to convince the membership that any money spent would improve the golf course, enhancing the member experience, retaining existing members while attracting prospective members.

To do that you first have to convince them that the underlying Langford course is valueable and worth "polishing"

If you can gain a consensus or support within the power base, you'll succeed.

Good luck
 

[Mike McGuire]

Pat -

The new power base seem to operate under generally accepted practices from the accounting world. They do not see the value of an enhanced Langford course even though part of a recently approved master plan by an architect highly regarded on this board.

You are correct money is the issue. With a shrinking membership do we hunker down or use the resources we have to enhance the course to retain members and attract new ones?

I brought up depreciation as we are expected to break even after subtracting depreciation. Should a private club use the same accounting principles as a for profit  corporation ?

Debt is another issue as we will be debt free after next year. Not paying off the entire balance next year would free up some funds to enhance our course.

Money is cheap now and we could look back and say - good thing we did it then.

 

[Mike Sweeney]

I brought up depreciation as we are expected to break even after subtracting depreciation. Should a private club use the same accounting principles as a for profit  corporation ?
 

The IRS uses/guides/suggest 15 years for course improvements for a for profit club. Assuming you are a not for profit club, you could accelerate the depreciation or vice versa to wipe out a surplus but that sounds like that is not the case. Not an accountant, and without a more specific set of numbers, it is hard to say:

http://www.irs.gov/businesses/article/0,,id=171004,00.htm

[Carl Johnson]

Pat -

The new power base seem to operate under generally accepted practices from the accounting world. They do not see the value of an enhanced Langford course even though part of a recently approved master plan by an architect highly regarded on this board.

I'm not an accountant, but I don't see your question as an accounting question.  I don't think it's the job of an accountant to "see the value of an enhanced Langfore course."  Accountants present numbers according to "rules."  It's up to the business people, in this case the Board and club members, to decide what to do with those numbers.

You are correct money is the issue. With a shrinking membership do we hunker down or use the resources we have to enhance the course to retain members and attract new ones?

This is simply a business question.  Will the course "enhancements" retain new members and attract new ones, or is it just more money down the drain.  The club, as a "business," which it is, even if nonprofit, simply needs to weigh the risks and rewards of the alternatives.  If the club is smart, they'll make the right decision (whatever that may be) and if not, they'll make the wrong decision, and only hindsight might tell the tale.

I brought up depreciation as we are expected to break even after subtracting depreciation. Should a private club use the same accounting principles as a for profit  corporation ?

Again, as a nonaccountant, not for the purpose of the kind of decision-making you're talking about.

Debt is another issue as we will be debt free after next year. Not paying off the entire balance next year would free up some funds to enhance our course.

Money is cheap now and we could look back and say - good thing we did it then.

Or, boy, that was a mistake.
 

[Bill Brightly]

Mike,

Sounds like the way to go might be long-term plan where a certain amount of your club's capital budget each year is set aside for course improvements. Hopefully you have a GCA to design the plan, and then you will have a road map to follow. You can take on bigger or smaller projects depending upon how each year's overall budget is going. We are doing this now, and the membership is excited and anxious about what hole will be worked on next year.

Our bylaws require  membership vote and the plan passed 194-11. We have completed 4 holes.

[Tim_Cronin]

How have improvements for anything at the club been funded in the past? Out of assessments? Loans? A general fund?

One club I know of in the Chicago area (and probably several others) funds all major projects out of initiation dues, or taking out a loan against future initiation fees. Member and guest fees take care of day-to-day operations. To do this these days, of course, you need a steady flow of new members, if not a waiting list, and they have both. Not many clubs do of late, but if you do, it's a potential option if the board is enlightened.

With your membership declining, options may be few. But without moving quickly, membership may dwindle. There's a point of no return on these things. Good luck!

[Jeff Goldman]

Mike,

Depreciation in a non-profit context is a little odd, and what you do sort of depends on how you fund your capital improvements.  In one sense depreciation is a "stand in" for necessary capital expenditures (though the correlation is uncertain).  To that end, we fund all capital spending with initiation fees and contributions, and so we take depreciation out of our operating resultsou need to spend (though it doesn't necessarily correlate to that).   We basically ignore depreciation, but keep a separate capital spending plan (again, funded by capital collections rather than dues and other operating revenue), to know what we will need, which again is a substitute.

This is sort of in line with the idea that for a non-profit, cash is what matters, not accounting.  If you show a huge loss because of depreciation, but your cash position never gets below a certain very nice cushion, who cares about an accounting loss?  Again, that presumes that you can fund your capital expenditures out of non-operating funds, or your good cash position is after accounting for capital improvements.

On the bigger picture, course improvements are capital expenditures as someone said, but how to fund them is a political/marketing issue, not really accounting.   

Jeff

[Pete_Pittock]

Jeff,
For equity members keeping capital improvements, contributions and assessments separate from operating expenses is an excellent practice when you exit the club.

[Mike McGuire]

Jeff -

Thanks for that explanation.

The accounting losses we are incurring overall due to depreciation are being used as a reason to not fund capitol improvements on the course.

We are depreciating our 18th hole renovation from 10 years ago at 250k. A lot of the members don't like the hole. When they find out they are paying for it twice due to depreciation they might be pissed.

[Bill Brightly]

Mike,

Sounds like the way to go might be long-term plan where a certain amount of your club's capital budget each year is set aside for course improvements. Hopefully you have a GCA to design the plan, and then you will have a road map to follow. You can take on bigger or smaller projects depending upon how each year's overall budget is going. We are doing this now, and the membership is excited and anxious about what hole will be worked on next year.

Our bylaws require  membership vote and the plan passed 194-11. We have completed 4 holes.

Pay as you go?

Don't worry, Kelly. The architect gets a fee up front for the plan and a % of the construction costs as they are incurred

I would have preferred completing it faster, but doing it this way was a FAR easier sell to the membership.

[Jeff Goldman]

Mike,

That's interesting.  I know that there are guidelines on depreciating golf holes (actually, USGA greens, I think), but again, it doesn't really say much about a nonprofit club's financial standing (leaving aside the equity stuff Pete is referring to).   I mean, if a club has an annual operating assessment or Congressional system, they are going to assess the membership to fund an operating loss resulting from depreciation on a golf hole?   I wouldn't want to try to explain that to the membership.

You still owe me a visit to Olympia Fields.

Jeff

[Rob_Waldron]

If the club set aside funds in a reserve account equal to the depreciation then they would be able to fund "repair & replacement" of their depreciating assets.

[Jerry Kluger]

Like any project the first thing you must have is a financial plan and that means a detailed explanation of how much it is going to cost.  You also need a plan of how you are going to go forward with the plan - for example, are you going to go hole by hole or are you going to do the bunkers first, then relocate or rebuild tee boxes, etc.  Keep in mind that any work that requires shutting down a hole or the course for more than a week or so should be done at the same time so if you are going to redo a fairway and a green you need to have the money to do it all at one time.  Anytime you shut down you are losing revenue in addition to the cost of the improvement.  If you feel that the people in charge will not listen to you then bring someone in who will get their attention such as an architect who can do a photo presentation of other work he has done and where they can see how the work can make your course better. 

I think there are many, including myself, who would love to undertake some improvements at their course but it is not going to happen in these economic times so good luck.

[Patrick_Mucci]

Pat -

The new power base seem to operate under generally accepted practices from the accounting world. They do not see the value of an enhanced Langford course even though part of a recently approved master plan by an architect highly regarded on this board.

That's too bad.  I believe in Fiscal responsibility, but, I also view Country/Golf clubs as a luxury item, not to be viewed and run exactly the same as a business.  There should be a "premium" attached to the dues that makes up for the difference between purely business and social/golfing values.

You are correct money is the issue.
With a shrinking membership do we hunker down or use the resources we have to enhance the course to retain members and attract new ones?

I guess, the first question is, how much enhancing do you need and what will it cost.
The second question is, why didn't you do the enhancing when times were good ?

I brought up depreciation as we are expected to break even after subtracting depreciation.
Should a private club use the same accounting principles as a for profit corporation ?

I think there are allowable differences

Debt is another issue as we will be debt free after next year.

That's terrific.

I do NOT believe that a club should entertain ANY form of debt other than bondholder debt, and I'd prefer to see that phased out.

Not paying off the entire balance next year would free up some funds to enhance our course.

That sets a TERRIBLE precendent.

Pay off the debt and DON'T go back into debt.

Pay as you go, for capital and operating budgets.

I see clubs, about to go under, because they took on a good amount of debt, and now the shrinking membership has higher and higher carrying costs, causing more members to leave, causing the costs for the remaining members to go higher and higher. 

Debt can result in a death spiral.  Avoid it at all costs.

Money is cheap now and we could look back and say - good thing we did it then.

 

[Dave_Miller]

I hope this is not OT because unless you can figure out how to pay for course improvements (private member owned club)  no new or improved architecture happens.

I need help -

I belong to a club with a cool Langford nine that could be outstanding with minor to major restorations. We have done a few things the last two years with a total of $20,000.

As a non accountant, and not real good business man,  in finance meetings I get beat up by the bean counters who are in control.

My first question is how much attention should be given to depreciation ?
 

At Charles River we went through th restoration process at the same time we were building a new Clubhouse and the issue was simply put MONEY.  Depreciation is not the issue here. While we did take on some debt for the Clubhouse it was manageable and will be paid off in a few years. However most of the funds were raised with an assessment to the members.
With a shrinking membership I would be very leary of taking on any debt.  Also be careful about letting members decide what enhancements you wish to have. Too many members want changes for their own games.
Best
Dave