From time to time, we all hear stories about football clubs that suddenly go bust owing hundreds of thousands of dollars to creditors. It seems ludicrous that this can happen. How can any management board or committee get themselves into so much trouble? Surely only wilful incompetence can create these financial disasters?
Surely it could not happen to your club, could it? Well here is a true story that might change your thinking.
In 2003, the management committee of a football club, which might be described as a 'grass roots' club , called a special general meeting at which they pleaded for assistance to help save the club.
Naturally, there was uproar among the members who had begun to hear bad news on the grapevine.
A new team of volunteers from within the club moved in and begun to make a closer examination of the financial affairs of the club. Various projections of income and expenditure were drawn up and the current liabilities scrutinized.
It was straight away discovered that the club had started the financial year with $70,000 of funds in the bank but had ended the year $30,000 in overdraft. Incredibly, the end of the club's financial year had passed 6 months earlier without any action being taken. It had just continued to further bleed funds. The club now had debts of around $120,000 including unpaid taxes.
The new committee of volunteers calculated that, on present course and speed, the club's debts would reach $200,000 by the end of the next financial year.
The question is really "how can this happen"?
In this particular case it was deemed that there were a number of key factors:
The three main decisions taken by the committee that principally caused the financial collapse were:
In reality, the club did not have the funding base to cope with these financial decisions. Probably the large sum of money in the bank at the start of the year ($70,000) provided a false sense of security. When the bank balance started to go into the red, the committee should have stopped then and there, but they let the situation carry on for a further six months.
At this moment the club could easily have filed for bankruptcy and gone out of business, but it escaped. The corrective action taken by the new committee comprised the following:
The club began to trade profitably more or less immediately the corrective action was taken. However it took 18 months to trade out of the disaster.
In reality, although the new voluntary committee rolled up their sleeves and worked very hard, the rescue could not have been achieved without the Management Agent who ensure continued supply of bar supplies.