Get Prepared for your 2018 Budget Cycle
- September 1, 2017
- Business Planning, Finance, Financing, Insight, Operational Analysis, Operations, Private Clubs, Rob Hill, Semi-Private, Public & Resort Properties
Autumn is with us and indications are that as club leaders prepare to go into their annual budgeting cycle, most European economies are witnessing steady improvement and positive forecasts.
Goldman Sachs describe the outlook for continental Europe’s economy as “cautiously optimistic” as the housing economy continues to recover in most markets, credit is loosening, unemployment is improving, and in particular, consumer confidence is building.
The caution, reflects a strengthening euro and of course Brexit uncertainty. Nobody knows yet where that is taking the UK or Europe, but it’s going to be disruptive and it’s not going to be positive.
So, emerging gradually as we are from years of frugality and incessant cost reductions, while also looking to better position the club for any future headwinds, how should club leaders be approaching this upcoming budget cycle?
Here are five guidelines and questions to address.
1. Evaluate variances in the current budget. How do this year’s actual results compare to your budget? Variances of more than 5% should be evaluated closely. Maybe you were overly optimistic? Maybe your execution was off? Beware of line items that were not accounted for in the budget. The question to ask: “How will we generate different and better results next year?”
2. Review and refine your scope of operations. The scope of operations describes all that the club does, including which days and hours the club is operational and which services are offered and on what schedule. In most clubs the scope of operations remains untouched from year to year. But it should be evaluated at the launch of each budget cycle. Refining your scope of operations is one of the easiest and most effective ways to improve performance results. The questions to ask: “What do our customers and members really want?” And “How can we operate more efficiently and eliminate waste from lightly used or inaccessible services or service times?”
3. Take a zero-based approach. Don’t rely on a simple calculation of a percentage increase on all expenses. Start with a clean budget sheet and plan each line item for a precise method of operation. Zero-based budgets are built brick-by-brick, with one assumption added to the previous. Any flawed assumption weakens the foundation. Understand and document each assumption in each line of the budget. To build a budget from scratch one must be organised and thorough. It will take more time to ask the questions and to find the answers.
While zero-based budgeting isn’t easy, it’s the sign of a real professional. The result is a budget that is more thorough and reliable than one produced by any other method. The question to ask: “Are my assumptions realistic and based on facts/data?”
4. Increase revenue expectations. Revenue growth has been slow or stagnant for several years. Many managers continue to try outdated programs that did not work in the first place. Customers and club members seek value. Price increases in importance in their eyes when value is lacking. So before you budget for improved revenue, make sure you’re maximising value. Revenue increases originate in the following ways:
- Sell the worst – least desirable – tee (or court) times first. The best inventory sells itself. Revenue growth comes when attention is given to selling what doesn’t readily sell itself. This increase in utilisation is like finding new money.
- Bundle services to provide greater value for members and customers and to support price increases. Can you bundle services that give your members greater value and improve operational margins at the club?
- Make popular goods and services available to your members and customers ahead of the demand curve. Do you use virtual retailing options to expand access to new and popular products?
The question to ask: “Am I thinking like my customers and members. Am I giving them what they want – recognition, respect and courtesy?”
5. Attack and reduce overhead and administrative costs. Most clubs accept increases in products, services, rates and premiums as the cost of doing business but as a club leader don’t give up so easily. Be committed to the hypothesis that there is a lower cost alternative and to negotiation. Even if you are proven right just 10% of the time this diligence will impact your budget parameters. The question to ask: “Have I thoroughly explored and negotiated the possibility of a decrease in property taxes, utilities, insurance premiums, professional services and supplies?”
The summer is only just behind us but your planning for 2018 should be well underway. That process starts with the budget.