“Money makes the world go around, the world go around, the world go around”

“Money makes the world go around, the world go around, the world go around”

By Bruce Gotterson

November 10, 2016

This article appeared in the November 2016 issue of Club Life.

Good financial management and planning are crucial to any successful enterprise, including registered clubs.

Having a good understanding of financial matters and being more financially literate will greatly assist directors in developing, managing and monitoring a good financial plan.

In its review into the club industry in 2008 the Independent Pricing and Regulatory Tribunal (IPART) made the following observations:

IPART considers that a range of initiatives for improving clubs’ corporate governance should be implemented, including initiatives focused on:

  • improving the skills of directors, by requiring them to undertake core training modules within 12 months of being elected, and encouraging the use of performance assessments to identify areas where boards and individual directors need to improve…

 IPART considers directors should be required to complete additional training when elected to the board. This additional training should focus on the core areas that stakeholders indicated many directors struggle with, including financial fundamentals and directors’ duties.”

IPART also made the following recommendations:

That all clubs monitor the following business efficiency measures:

  • Gaming revenue as a percentage of total club trading revenue.
  • Wages as a percentage of total gaming revenue.
  • Net contribution as a percentage of total gaming revenue.
  • Revenue per gaming machine.
  • Departmental revenue as a percentage of total trading revenue.
  • Departmental gross profit as a percentage of departmental revenue.
  • Departmental wages as a percentage of departmental revenue.
  • Departmental net contribution as a percentage of total departmental revenue.
  • Total club wages as a percentage of total trading revenue.

That all clubs measure the following financial viability measures:

  • EBITDARD %.
  • Working capital surplus/ (deficiency).
  • Operating cash flows/working capital deficiency.
  • Operating cash flows/borrowings.
  • Capital expenditure/operating cash flows.

Much has been written about the Centro court decision. The courts now expect directors of public companies (which include registered clubs) to have a degree of financial literacy at least as far as basic accounting concepts and conventional accounting practices are concerned.

Directors have a duty of care and diligence to read, focus and understand the financial accounts. This duty cannot be delegated.

Directors are expected to understand the club’s accounts and must spend sufficient time to review and consider them. Directors need to ask management and the club’s external advisors if they do not understand any aspect of the accounts.

However at the end of the day directors need to undergo training if they do not understand the club’s financial accounts.

The introduction of mandatory training for club directors in the two important areas of director’s duties and finance for club boards is a very good move in the right direction. It will in my view lead to a greater understanding and acceptance throughout the club industry of the importance of and the great benefits that come with ongoing training. The greater emphasis on director training will enhance the great work that has already been done by the Club Directors Institute initiated by Clubs NSW.

For more information contact Bruce Gotterson on b.gotterson@pigott.com.au

 

Click on the image below to see the article as it appeared in Club Life November 2016.

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This article is intended to provide general information in summary form on a legal topic, current at the time of publication. The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.