the executive dashboard
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6/7/2016
1
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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3
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
Executive Dashboard Q&A
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)
CB Executive Dashboard
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Executive Dashboard Q&A
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
CB Executive Dashboard
CB Executive Dashboard
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
The Financial Insight Model – Fixed Expenses
The Financial Insight Model – Fixed Expenses
56% 61% 65%
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Financial Sustainability
…would the club be able to adequately fund all amenities and member experience…
…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
…would the club be able to adequately fund all amenities and member experience…
…would the club be able to adequately fund all amenities and member experience…
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
rconde@clubbenchmarking.com
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