Continuous Improvement Fund Follow-Up Letter
February 16, 2017
Dear Fellow Red Run Members,
On behalf of the Board of Directors and Finance Committee, I wanted to follow up on the Continuous Improvement Fund (CIF) letter you received in January. We appreciate all of the feedback, both positive and negative. As fellow members, we share many of your feelings. However, as fiduciaries of the Club, we believe this is the best avenue to remain financially strong while providing a great experience.
We have discussed many times in recent years how the business model for Red Run has changed. Many other clubs in our area have experienced the same change. The old formula consisted of Transfer and Initiation Fees providing the funds for capital expenditures. In many years, those funds were used to cover shortfalls from the other operations of the Club. This has changed. We want to share a couple windows of time in recent years that will evidence this.
Transfer and Initiation Fees Capital Expenditures
Years 20002005 $2,595,744 (Average $432,624) $2,828,125 (Average $471,354)
Years 20102016 $1,000,815 (Average $142,973) $3,187,504 (Average $455,357)
As you can see, we were short an average of $38,730 annually in the six years between 2000-2005; however, this deficit has grown to an average of $312,384 annually in the seven years between 2010-2016.
Necessity dictated that we adapt the Club to a new reality. Transfer and Initiation Fees would not fund the needed Capital Requirements. The operating side of the Club would have to be adjusted to not only stop operating at a loss, but to actually provide the funds to make up for the dramatic reduction in Transfer and Initiation Fees.
For a number of years, capital spending was kept to a minimal level, with each item of capital being approved in a budget, then at the Finance Committee, and finally at the Board level before the money was spent. Operating expenses received the same level of scrutiny with budgets being approved at Finance and Board levels, and then managed daily by the department managers and staff. The Finance Committee met monthly to monitor actual results against the budget. In this manner, we were able to meet the goal required by the new business model. While we acknowledge that the Club can always do better, we believe that spending is watched very closely.
Along with a slightly improving economy in 2016, decisions were made to catch up on overdue capital spending, especially in the Clubhouse. While more money was spent in the Clubhouse in 2016, there are other years where more money is spent on the golf course. The hope was to maintain and attract more members with the enhanced experience this past year. However, when we evaluated our current financial situation in 2017 against the projected needs, we saw we would be unable to fund some highly desirable capital items while maintaining adequate liquidity and the customary level of service in our operations.
To address this issue, we decided it was in the best interest of the Club to establish the CIF as a new revenue source to fund the major need for both operating and capital items. On the operating side, labor is a consistent challenge to manage efficiently in a club environment. We want to share a few examples. On the golf course, each heavy rainfall in the summer requires a significant amount of cost to bring our bunkers back to playable condition. This has occurred multiple times over the last couple of years. In addition, we have strived to provide a course every day that you enjoy playing and are proud to bring guests out to join you. In the Clubhouse, we need to staff appropriately at all times to provide the dining experience desired. However, this comes at a cost to the Club, especially on unexpectedly slow times. There is a clear value vs. cost relationship that is only getting tougher as labor costs are the top issue facing businesses today. We have received a number of comments stating this feels like an assessment. While a portion of the CIF will be used for capital, there are other needs for the money as described above. The simple fact is this we need your help to address important funding requirements.
We have included the current fiscal year capital expenditure budget, which totals $417,000. Items can move between priority categories over time but it is common to address most of the items in priority categories 1 and 2 each year. We also prepared a rough 5 year outlook on capital. At this point, we project to spend roughly $340,000 annually each of the next five years. We think it is also important to note that there are several large capital programs totaling $2.02 million that have not yet been addressed in our annual budget as they are too large to fund without special arrangements. These are listed at the bottom of the budget. It is obvious that our capital demands far exceed our capabilities.
Our hope is that we can reduce or eliminate the CIF in time. Our Board is committing to review the need for this fee at the end of our fiscal year in September 2017. We understand that asking you to contribute more of your hard-earned dollars to support our Club is difficult. The honest truth is there is never a good time to ask for more money. We believe that Red Run is a great place and your investment will ensure our future remains bright. As always, please do not hesitate to contact Club management, any committee member or a member of the Board of Directors if you would like to discuss this further.
Jim Robinson
President
Please see link below for Capital Expenditure Budget
CIFCAPITALCHART2017