One of the first things a club in formation should do is get a sense of what your operating costs will be. A basic budget should include the club’s expected revenue as well as the sum of the club’s annual fixed expenses and an hourly operating cost for the aircraft.
Revenue for the club will include the initiation fee or new member buy-in, monthly or annual membership dues, an hourly rate for aircraft rental, and possibly assessments for special events or major upgrades or acquisitions.
Expenses are generally divided into two categories—fixed costs, such as insurance and hangar or tiedown fees, and variable costs, like fuel and oil. Most flying clubs use monthly dues to cover their fixed costs and revenue from hourly rates to cover variable costs. However, a club is free to choose how it wants to generate funds for specific purposes. To determine the monthly dues, clubs generally divide the fixed expenses by the number of members.
In addition to monthly dues, the club must consider the acquisition of the aircraft and other club assets. In an equity club, the purchase of the aircraft is usually funded by the initial buy-in of the club members. Membership shares are usually transferable to new members when the club experiences turnover.
Clubs that finance a portion of their aircraft will have lower buy-in costs but experience higher monthly dues to compensate for the aircraft loan. Some clubs that form through financing maintain lower buy-ins even after the aircraft has been paid off, which is a great way to attract new members.
A proposed budget will be required on your IRS Form 1024 if your club chooses to apply for not-for-profit status. It is important to remember that the proposed budget for form 1024 is a rough estimate and actual finances may very slightly from those proposed.
Some clubs lease aircraft, which makes for a different financial breakdown of fixed and variable costs. Most aircraft leases will have a base lease fee that repeats yearly, usually 5 percent of the value of the aircraft, plus an hourly rate for the use of the plane. The responsibility for maintenance, engine replacement, insurance, and other expenses are negotiable. However, most club leases will include the following responsibilities:
The benefit to the above responsibilities is that the aircraft owner can maintain his or her plane to the level they find appropriate and agreeable with the club. And the club pays for insurance rate variances that are affected by number of members, type of members, and accident history. Based on the above example, the base lease fee would be categorized as a fixed expense and the hourly lease rate would be a variable cost.