This Article first appeared in CLUB LIFE – MARCH 2013
“Money makes the world go around, the world go around, the world go around”
They said it in Cabaret and it applies today.
Good financial management and planning are crucial to any successful enterprise including registered clubs.
In order to develop, manage and monitor a good financial plan those in control need to have a certain level of financial literacy.
The better your understanding as a director of your club of financial matters including financial viability measures the better you will be to understand the club’s financial performance and the better your board will be able to 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 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 practises 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 accounts and must extend the time to review them if insufficient time has been allocated to review and understand them.
Directors need to ask management and the club’s external advisors if they do not understand an aspect of the accounts.
However at the end of the day if directors do not understand the financial aspects of the club and or the accounts then they need to get some training.
As readers are aware the new regime of mandatory training for directors and managers of registered clubs will commenced on 1 July 2013.
All new directors (with no recognized prior learning) elected after 1 July 2013 will have to complete the minimum training –Director Foundation and Management Collaboration and Finance for Club Boards-within 12 months of their appointment to the Board.
The introduction of mandatory training in the 2 important areas of director’s duties and finance of club boards is a good move in the right direction. It will in my view lead to a greater understanding and acceptance broadly 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 on directors’ duties for directors of Registered Clubs contact Bruce Gotterson on b.gotterson@pigott.com.au
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.