Fiscal Responsibility: Understanding your club’s financial position
Published by The Canadian Society of Club Managers in CMQ (Summer, 2015)
It’s been said that money “makes the world go ‘round” and looking around the room at many clubs often reveals an impressive display of successful members who have accomplished much. Money is typically equated with success, and generating it over the long term isn’t just about bringing in sales, as sustainable results are often much more about managing the “bottom line”. This can only be done by keeping a watchful eye on expenses, among other things, which isn’t always as easy as one would think.
Most club managers know, on at least an intuitive level, that finance is an important aspect of running a successful club. But, with so much to do to ensure that service offerings are great, staff members are doing what’s required, and facilities are in top shape, financial management tends to find itself on the backburner. If left unattended for too long, it becomes the proverbial pot that boils over.
There is a lot that club managers need to know when it comes to keeping tabs on a club’s financial position, and although most have at least some knowledge, how much is truly understood? There are many areas to address, including managing cash flow, tracking expenses, budgeting, and understanding which areas are making money (and those that are not!). Although it might be relatively easy to monitor information on a frontline basis (such as in the case of food costs), understanding where a club is at on an overall basis, and where it’s heading, isn’t so easy. Seasoned leaders wouldn’t dream of lacking skills and attention in the finance area, as they truly understand that the buck stops with them!
Trouble in the Club
In a competitive world, it’s critical that all businesses have products and services that customers want and for which they will pay (the more, the better). In the case of clubs and similar establishments, it’s also important that they are places where people want to be. As a result, there is often a lot of time and effort expended on achieving this ideal; however, in the process of doing so, there are things that can get lost in the shuffle. One of those things is money.
Like the successful members that keep clubs in business, their managers need to be equally savvy in making the most of the financial opportunity. This means being on top of a club’s financial position at every moment, as well as having a good sense of what the way forward looks like. In order to do so, it’s not just about a casual perusal of what accounting staff produce; rather, it’s about setting and maintaining expectations around how the accounting and finance function is established and operates, in a consistent manner. Technical skills are important, but the approach and belief that financial management truly matters are equally important.
Failing to do so can lead to a host of problems, including incomplete (or incorrect!) information, staff members that lack the necessary accounting skills to do the job properly, and poor application of policies and procedures. The result is too often financial information that isn’t worth the paper it’s printed on, despite the fact that club managers rely on it to manage a critical aspect of their operation. This is a frightening scenario with potentially disastrous outcomes.
Remember the saying, garbage in, garbage out? It’s never more true than in the accounting world. Skilled leaders recognize the importance of the accounting and finance function, and wouldn’t make the common mistake of downplaying it as “not that complicated”. Here’s how to ensure that you’re well equipped to lead the financial aspects of your organization:
- Recognize what you don’t know. The biggest mistake that a leader can make is to marginalize accounting as “just processing” or “not that important”. It is true that accounting departments do record transactions and pay bills, but there is so much more that can be achieved from a value perspective. This means: (i) knowing how to process transactions correctly; and (ii) developing and producing reports that communicate the right information in an appropriate manner. Many accounting functions do not do this well, leaving leaders with a false sense of security, especially those without a finance background. Recognize that this is a learned area and don’t assume that you “know enough”.
- Hire the right people. Many leaders have difficulty understanding the type of help they need in the accounting area, mostly because they don’t understand the particular roles or what accountants actually do (closely followed by marginalizing the importance of the accounting function!). People who work in this area, especially those with professional accounting designations, such as the CPA, understand that there are standard roles and tasks and that candidates can differ significantly based on their particular experience and qualifications. Getting the right people in place usually means seeking the input from someone who understands this, so don’t go it alone.
- Insist on timeliness. Financial information has its highest value at the point in time when it actually happened. Like that delicious cream sauce that can quickly lose its appeal, financial information isn’t particularly helpful if it arrives a month or two after when it mattered. Organizations can find reasons to delay generating financial information to when they get around to it; insist on timely month end reports, ideally delivered to you two weeks after the end of the previous month.
- Ask questions. Financial reports are complex, especially for untrained readers. In order to fully understand what a financial statement or report is communicating typically takes years of education and practical experience. Receiving information and filing it away is of little value; rather, the usefulness is in conducting a thorough review with your accounting manager, understanding what the club’s financial position is, and taking these findings to a front line level with your management team. The process doesn’t stop with receiving the report; that’s only the beginning, as the real opportunity is to make the necessary adjustments to generate better results going forward. This is how sustainable financial performance is achieved.
- Utilize advisors well. Experienced advisors can help to improve the financial performance of your organization through various means, including reviewing current results and recommending improvements, assisting with budgeting and forecasting, and training your senior team (many of whom might not have a finance background) to better understand financial management. The outcome is this: a higher level of financial acumen across the board and better results.
- Invest in professional development. As a club manager, you hold the key to putting your organization in a position to move forward with strength. If the accounting and finance area is not functioning well, get help! Make a commitment to improve your skills in this area and let it permeate throughout your team, as it is an investment that will benefit your organization, as well as your own career.
Having been involved with numerous senior level management recruitments over the years, leaders who understand both what their organization does and the financial aspect of doing so are in high demand. The supply is short. Stepping up your financial acumen is good for the club, but it’s undoubtedly great for those who lead.