Planning for capital projects at a private club can be a complicated undertaking and requires both long- and short-term outlooks. When considering the needs and desires of a club, it’s not uncommon for different factions of the membership to see things differently. With golfers wanting course enhancements or other members looking for an upgraded clubhouse or dining facilities, when planning for capital projects, it’s important to consider many questions: for example, whether or not improvements will enhance membership development, whether members are willing to pay for improvements, how enhancements will impact operating expenses or how a project’s construction will impact club operations.
Capital budgeting’s main goal is to make long-term investment decisions about whether particular projects for a club will result in sustainable growth and provide the expected returns. Capital budgeting is important to a club’s long-term stability, as capital investment projects are major financial decisions involving large amounts of money. If the rate of return is greater than the weighted average cost of capital, a club will generally decide to invest in the project. However, making poor capital investment decisions can have a disastrous effect on a club.
Clubs should pursue any and all projects and opportunities that enhance their value and profits. The capital budgeting process helps to evaluate the growth and profitability of any projects. The process can also help compare which project will yield the best return over an applicable period—and determine which projects should be prioritized. A capital project is more than routine maintenance on an asset; they are projects that expand the current operations and must make an asset more efficient or productive in some way.
Capital budgeting evaluates the costs and benefits of potential large-scale projects and is a vital process in order to avoid throwing money at a project that brings no gains to a club. Many clubs begin the planning process with the establishment of committees who then seek input from club members on the areas for primary focus for the project. While every member will likely have a wish list, it is critical for club leadership to understand the desires of current and prospective members and combine them with the realities of the club’s needs and limitations.
