Financial Updates

from our CFO, Kari M. Foster, CCM

Greetings from the CFO…..

The Briar Club is a desirable club with a great location! After the renovation in 2016, many Houstonians are seeing the increased value of belonging to The Briar Club. As a result, the waitlist to join the club continues to grow, which has created a different financial mix for the club due to the cap on the number of Equity members. In the past, Initiation Fee Income helped to offset any operational needs and fund Capital Replacement or new projects. Due to having a waitlist, the income from Initiation Fees has been significantly reduced. As such, the way of thinking around operating and capital dues needs to evolve.

The 2024 Budget Planning process is challenging our thinking and providing the transparency to consider many different factors for the 2024 fiscal year.

Operational Dues

Non-profit organizations (most private country clubs), which have the 501c7 designation budget each year to break even. Although the club allows non-member events in our banquet operations, the amount of income received from non-members is limited to 15% of gross revenue. Given the club budgets to break even, Operating dues (revenue) should be set at an amount that completely funds the operation. Operating Revenue is consumed each month via paying for goods, payroll, healthcare, taxes, supplies, etc. Each year there are inherent increases to the budget of private clubs, which include, but not limited to:

• Insurance

• Wages

• Goods/Inflation

• Utilities

As a management team, we continually review contracts and meet with vendors to ensure we are achieving the best rates and cost savings, as appropriate. We are also always thinking of ways to optimize spending, such as going “paperless” either with member statements, newsletters, or member receipts/chits.

Capital Dues

Capital Dues should cover all Capital replacement/addition needs that are obligatory in nature. These expenditures are for items the club currently owns and needs to replace. Typically, this is due to the service life of the asset being exhausted and/or due to the usage of the asset making the replacement essential.

A Reserve Study provides data to ensure that assets are being replaced in a timely manner, which keeps all equipment working to ensure smooth operations. It provides visibility to the assets that need to be replaced and ensures funds are available with the complement of a thorough Capital Dues Plan.

For example, if a refrigerator needed to be replaced, but just keeps being repaired, the impact of that decision may create more spoilage, if the unit keeps breaking down, which is an additional cost/loss to the club. Additionally, there may be an interruption to the flow of operation in the back of the house (kitchen), which can ultimately impact employee productivity.

In summary, a Reserve Study Model accomplishes visibility to three main items:

• Sources of Capital Income

• Capital Spending Needs

• Replacement (Obligatory)

• New (Aspirational)

• Ways to Fund the Gap

Over the past few months, the club conducted a comprehensive Reserve Study that encompassed the following:

1. Audit of all Fixed Assets on Property.

2. Review of Depreciation Schedule for any assets that needed to be added or disposed of, if no longer on property.

3. Collaboration with Department Heads to review the fixed assets in their areas and plan what is needed for not only the 2024 Fiscal year, but also over the next 20 years based on the current service life of each asset. *In process –completion set for mid-July*

4. Executive management review to refine and determine which replacement items are necessary for business continuity in 2024 and beyond. *In process – completion set for mid-July*

5. Review of this data by the Reserve Subcommittee of the Finance Committee and Finance Committee, which will include a recommendation of the optimal level of Capital Dues and future structure. *In process – completion set for July/August*

In the past, Initiation Fee Income and Loans funded “New” or Aspirational Capital, for example: Competition Pool or New Clay Courts. With the reduction of Initiation Fee Income due to having a waitlist, there are other ways to generate funds for new/aspirational capital build. Closing the gap on funding may include one or a combination of the following:

• Capital Dues Designated for specific projects: occur on monthly basis in Year 1 to provide funds when needed for new project.

• Capital Assessments: typically, one-time amount billed to members to fund a specific project.

• Loan Funds: We currently have $6MM available capital on the new Reducing Revolver Loan with Amegy Bank

• Increase Initiation Fees: Waitlists generate more demand, which makes an increase in Initiation Fees possible.

The key to successful financial performance is planning and then adherence to the plan. It is essential to anticipate future needs and determine a prudent approach to ensure the club continues to fund daily operations and replace assets in a timely manner. This helps to boost productivity and morale amongst the staff, in addition, to refreshing the “look and feel” of The Briar Club.

If you have additional questions, please let us know.

Best, Kari

June

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