We Mustn't Accept our Lodge Finances as the New Norm
Money is at the root of almost every challenge we face in our lodges today – how to make it, how we spend it and how to save some of it. Much is said about what we are doing wrong and little is said about how to fix it. Here’s my attempt at changing that!
I recently did a deep dive into the numbers of a random group of lodges. Here’s what I found.
Their assets (what they owned) averaged $647,000. Their liabilities (what they owed) averaged $72,000. Their charity fund (restricted funds) averaged $46,000 and that gave them equity of $529,000 as follows: the average lodge had $175,000 cash on hand March 31 and food and liquor inventories were valued at $13,000. They had accounts payable of $51,000 and loan payments due of $21,000. Their fixed assets totaled $411,000 and they had other assets valued at $2,000. Here’s the good news: assets were up 10% over a five-year period, liabilities were down 8% and restricted funds grew 29%.
Now for some not so good news: the finances of a lodge are evaluated based on the profitability of the lodge operations and the club operations. With this group of lodges, lodge revenue was up only 1% over a five-year period and expenses were up 18% led by miscellaneous expenses, accounting, per-capita dues to state and Grand Lodge, insurance, repairs and maintenance, fundraising, and utilities.
Club revenue was up 16% over a five-year period (bar sales up 13% and dining room sales down 9% over five years) and club expenses were down 11%. So, you ask, how is this bad news? Well, it’s not in itself, but when combined with the losses incurred in the lodge operations, they basically offset (well actually it’s a small loss). So, what that tells me is we are doing a good job of maintaining the status quo of the overall operations and that is good, but is it sustainable? This is what concerns me, as I think it is not! We continue to bring in new members (volunteers) to act as our management and labor force, but what happens when new members slow down? As mentioned above, the charity funds in these lodges have grown 29% in five years. That is fantastic! But I ask again, are breakeven operations and our new emphasis on charity sustainable? Is this what is producing the volunteer force? Are we prepared for the day when that source wanes? Do we have a plan to keep the doors open?
Rarely is there a lodge that operates at the Grand Lodge prescribed 35% cost of goods sold (COGS). This is a percentage that is calculated in the bar and restaurant that tells you the percentage of sales that was the cost of the ingredients. In other words, if a bottle of beer costs the lodge $1 and it is sold for $2.50, the COGS is 40% ($1 divided by $2.50). The Grand Lodge says that bottle of beer should sell for $2.86 (35% COGS) and that is before sales tax is added. So, in a county where the sales tax is 7%, that bottle of beer should sell for $3.06. In the lodges I reviewed, the COGS in the bar was 47%, the employee expense was 18%, and the music and entertainment expense was 8%, giving the bar only $0.28 gross profit from each dollar of sales. In the dining room, the COGS was 47%, the employee expense was 9%, and the music and entertainment expense was 10%, leaving the dining room with only $0.34 gross profit from each dollar of sales. Remember, this is gross profit before other expenses such as utilities, supplies, etc. are subtracted.
Of the lodges reviewed, the average lodge had 17 weeks of cash on hand and 1.6 months of inventory April 1, another key metric to which every lodge should be paying attention. What this tells me is that the average lodge cannot sit on their hands and must conduct business profitably in order to maintain this status. When either get down to zero, the doors will close. How nice would it be to start the lodge year with 52 weeks of cash on hand and 12 months of liquor? In the lodges reviewed, that would require a cash influx of almost $365,000 to reach that point. It is wishful thinking, I’m sure, but perhaps your lodge management team could look at the numbers and strive to start working in that direction. Even small gains would make a huge difference!
So, what are we to do? Fortunately, I have some ideas!
Start by understanding that you and your fellow lodge members control the entire destiny of your lodge. Lodges are chartered by the Grand Lodge, and in Florida, each is a member of the association of lodges that make up the Florida State Elks, but your lodge exists in your community because members like you have a desire to operate and maintain an Elks lodge. Once that desire is no longer there, the Grand Lodge has no choice but to revoke the charter. Your lodge is your members and together you must oversee and operate the lodge and club within the rules and laws of the United States and the order.
Next, if you are not an officer of the lodge and you have skills in business operations, become one. The operation of a lodge is sophisticated and needs good people with proven business skills to run it. Give of your time and talent to become a part of the solution. As part of the operations team, tear into the financial records and don’t stop until everyone understands where every penny coming in comes from and where every penny going out is spent.
Hold town hall meetings with all the members of your lodge and explain to them the financial challenges of the lodge. Make them a part of the solutions. If prices need to go up, let them see why. If dues need to be raised, show them why! Vow to lower the costs in the operations so you at least have a shot at producing a profit!
Put the lodge building, its upkeep and beautification back on the priority list. Do NOT listen to those members who say we are a nonprofit and are therefore not allowed to make a profit. We DO NOT have to give away everything we raise! There is NOTHING wrong with holding fundraisers for the roof fund or building beautification. Set a goal to start a maintenance fund in the lodge as a rainy day fund so when the beer cooler breaks down, you do not have to sacrifice in order to repair it. Establish a goal to each year set aside an amount equal to 2.5% of the value of your building and personal property ($21,000 in the lodges I reviewed). The average lodge in Florida has 594 members and their dues are $77. To produce an additional $21,000, it would require the average lodge to increase their dues $35 to $112. How hard would it be to sell the membership on a dues increase when they know it will be temporarily restricted for a good use?
- We need members with experience to step up and share the workload.
- We need to dive into the operations and get control like we’ve never had before.
- We must operate profitably.
- We need to quit thinking that members’ patronization of the bar and restaurant is enough. It is merely cash flow. Few if any lodges are operating their bar and restaurant to produce a profit.
- We need our members to take a financial interest in the lodge and assume their fair share of the upkeep.
- We need to do a better job of holding new members accountable for not just their labor and charity but also a financial commitment to the lodge.
Good financial management of the lodge is essential if we are to continue to thrive. Adjusting a few priorities might be all it takes.
Please visit https://floridaelks.org/carls-corner and join the conversation by logging in and posting your comments.
Carl Seibert, COO/State Secretary
Florida State Elks Association