Tag: capital

Labor, Capital Spending Top 2022 Budgets

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Budgeting for 2022 is complicated by rapidly changing circumstances and market conditions. GGA Partner Henry DeLozier offers insight into areas where budgetary impact will be greatest. 

Budgeting for 2022 is complicated by rapidly changing circumstances and market conditions. For most experienced hands, anticipating changes within their industry and business is far easier than predicting the breadth and depth of the impact the changes will have on their budgets. Here are two significant categories where budgetary impact will be greatest:

1. Labor costs

Historically, the cost of labor and employee benefits represent the largest line item in a golf course’s operational budget. A trend toward a $15-plus per hour minimum wage and desperately low labor supply conditions will only increase the budgetary impact of labor and benefits. In the wake of the COVID-19 pandemic, and the resulting impacts on labor, two truths are becoming evident:

  • Those clubs and courses that kept staff on the payroll and continued long-term relationships with their employees are being rewarded in two ways. First, those courses are not having to search a tight labor market for replacements. Second, course care and upkeep have been sustained by committed and knowledgeable employees who have a running head start on those clubs that have been forced practically to start over.
  • Working knowledge of your specific course and conditioning expectations promotes a more cost-effective recovery process.

But what if circumstances and decisions beyond your control have forced you into a game of agronomic catch-up? Here are some remedial actions to consider:

  • Update your agronomic plan to state your expectations for course conditioning. New employees need (and want) to understand what is expected of them. Be thorough. Be enthusiastic. Show how much you care.
  • Plan for robust new hire training. Pair experienced hands with newcomers. See that the veterans describe the values and standards of the work to be done with the same clarity and as enthusiastically as teaching the job’s “how to” components. Train the trainers to ensure across-the-board engagement and understanding. Plan daily technical training for your round-up sessions to bring new hires up to speed and promote consistency.
  • Hire veterans. There are approximately 19 million veterans in the United States, according to the U.S. Department of Veterans Affairs. As the increasing number of veterans mustering out of service expands, many trained and mature workers are searching for jobs. Some three-quarters of these veterans saw wartime service. Take the steps to learn more about those who have given so much and see how much they can give to your operation.

2. Capital maintenance

Capital spending for most golf facilities has expanded decidedly as an improving economy loosened purse strings and made more money available for deferred capital maintenance spending. Financial analysts at our firm note that capital spending is up by more than 55 percent at U.S. golf facilities, with most projects focusing on course renovations and restorations of historic designs, greens reconstruction and new bunker projects.

With the upsurge in golf’s popularity in the wake of the pandemic, many facilities have experienced growth in rounds played and membership enrollments. According to Golf Datatech, rounds played in 2020 increased by 13.9 percent over 2019 and through the first quarter of 2021 are up another 24 percent. The increased demand for tee times has given owners and managers new confidence to expand facility spending.

What are the smart moves being made by superintendents? They’re updating capital project rosters and renewing long-awaited requests for capital to upgrade facilities. And they’re not waiting. They’re describing the features and benefits of the intended projects and supporting financial projections with trustworthy third-party analysis.

In these uncommon times, it is important for turf pros to remember the sun does not shine on the same dog’s back every day. Market demand will shift. Access to labor will change. But the self-imposed high standards for most superintendents will remain and the expectations of enthusiastic golfers will expand. Prepare your 2022 budget carefully and with a broader understanding of social, economic and market conditions.

This article was authored by Henry DeLozier for Golf Course Industry magazine.

Mid-Year Predictions for the Second Half of 2021

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At the start of the new year and in the spirit of planning, the thought leaders at GGA Partners sat down to predict what we believed to be coming throughout the year and shared our 2021 Predictions on the Shape of the Next Normal. Now, halfway through 2021 with the spring season in the books and summer underway, we reconvened GGA leaders for a mid-year check-in on predictions for the latter half of the year.

1. Ensuring fair and equitable access to amenities remains top of mind, especially on the golf course

A trending topic throughout the industry is golf’s demand surge and how long it will sustain, much has been written on this point and those who are closely watching rounds played metrics anticipate a clearer reading by the end of the summer.

Stephen Johnston, GGA’s founding partner, expects that private clubs will see the surge continue to elevate rounds played by members which will likely increase issues relating to compaction of tee traffic and accessibility.  He predicts the benchmark regarding average number of rounds per member to be higher by approximately 10% following the pandemic and also increased golf course utilization by members’ spouses and family members.  Both factors will create a greater demand for tee times at private clubs.

Johnston believes some clubs may need to consider permitting round play by fivesomes instead of foursomes, potentially catalyzing logistical challenges such as a greater need for single-rider power carts in order to maintain speed of play at the same rate as foursomes with all players using power carts. For club managers and course operators, this entails an increased need for current and detailed evaluation of the benefits of membership and the relationship between playing privileges and the practical ability to book a tee time and get on-course.

2. Effective demand management is key and will shift from agile, flexible approaches to new operating standards as demand stabilizes

During the pandemic and throughout 2020, many golf, club, and leisure businesses recognized the increased need to more accurately and routinely measure the utilization of amenities, adapting operations management to react quickly to change.

Craig Johnston, head of GGA’s transaction advisory practice, anticipates an evolution in this one-day-at-a-time, agile monitoring approach into a new and more formalized standard of operating procedures.  “At the start of 2021, we said we would see clubs provide flexibility and experiment with various operational changes,” he explained.  “With the pandemic feeling like it’s steadily moving toward the rear-view mirror, members will be expecting clubs to begin instituting the ‘new normal’ operations and the data compiled by clubs in the first half of the year will be critical to deciding on the new normal.”

Johnston believes that membership demand will continue to be strong through the second half of the year and that it is likely utilization will reduce marginally as members begin travelling again for work and social obligations.  Even with a marginal reduction in utilization, demand for private club services will remain strong and will continue to put pressure on capacity and access in most clubs.

Senior Partner Henry DeLozier encourages club and facility operators to embrace short-term continuations of high demand while keeping an eye on the future and the non-zero probability of a demand shift in the coming years.  “Clubs must create pathways to sustain demand while navigating utilization volume.  It is unwise to place hard or irreversible limitations on capacity while clubs are at historic maximums for demand and usage,” cautioned DeLozier. “Clubs will do well to establish a clear understanding of demand and utilization to enable innovative programs which serve to fill periods of low demand in the future.”

3. Ongoing uncertainty about the pandemic’s long-term impact on club finances will increase the review and reevaluation of club financial projections to ensure sustained budget flexibility

While data regarding utilization, participation, and engagement throughout the summer months continues to be captured and consolidated, business leaders should not delay their financial planning and instead get to work on reevaluating finances and updating their future forecasts.

“Now is the time to review, evaluate, and reset club debt levels,” emphasized Henry DeLozier. “Clubs need to recast financial projections based upon elevated joining/initiation fees arising from high demand.”

In support of alacrity in financial planning, DeLozier notes that labor shortages spurred by the pandemic will increase payroll-related costs at a material level. He also predicts that comprehensive risk review is needed at most clubs to evaluate possible impacts arising from cyber-crime and/or declining club revenues during 2022.

Beyond internal shake-ups in utilization or operations, club leaders should be anticipating external impacts that could impact their financial plans.  A hypothetical example raised by DeLozier is if the U.S. economy were to become more inflationary.  In such a circumstance he believes clubs would see an increase in the costs of labor and supplies which would necessitate increases in member dues and fees, a deceleration of new-member enrollments as consumer confidence dips, and a slight slow-down in housing demand.

Right now, uncertainty remains with respect to the virus as well as the resulting economic impact from the pandemic. From a financial standpoint, clubs will do well to advance their forward planning while retaining budget elasticity.  “It will be imperative for clubs and boards to build flexibility into their budgets and agility into their operations,” added Craig Johnston.

4. Existing governance practices, policies, and procedures will be revisited, refurbished, and reinvigorated

A litany of new ways of operating and governing the club arose as a result of the pandemic, some of which suggest an efficacy that can be sustained in a post-pandemic environment.  Essential to assimilating these adaptions into new standards of procedure is a review of existing governance practices and the documentation which supports them.

“At a time when boards can measure the full range of financial performance metrics, updating club governing documents is a primary board responsibility,” noted Henry DeLozier.  “Board room succession planning must be formalized to prepare clubs for the inevitable downturn from record high utilization.”

In considering the nearly overnight adoption of technology tools to enable remote meetings and board-level deliberations, partner Michael Gregory noted a substantial increase in the use of technology tools that go beyond virtual Zoom meetings.  “The pandemic has allowed clubs to test online voting,” he explained.  “For many clubs, once things return to normal, their bylaws won’t allow for the continued execution of online voting unless they make changes.”

“We have seen the adoption and implementation of online voting to be a huge success for the clubs who have tried it for the first time,” said Gregory. “Members love it, it’s easy, it’s convenient, it leads to higher participation from the membership, and many clubs are in the process of changing their governing documents to allow for online voting as a result.”  The challenges and opportunities of employing online voting are detailed in our piece on taking club elections digital, which features a downloadable resource that can be shared among club boards.

5. In human resources, expect to see deeper reevaluations of compensation structures and employee value propositions

Weighing in from across the pond, Rob Hill, partner and managing director of GGA’s EMEA office in Dublin, predicts that club leaders will face bigger challenges in human resources throughout the remainder of 2021.

The first of three particular items he called out is a reevaluation of compensation.  “Making decisions about employee pay is among the biggest challenges facing club leaders in the wake of the coronavirus shutdown,” stated Hill. “As they begin compensation planning for the rest of the year and into 2022, these leaders not only have to consider pay levels, but also the suitability of their mission and operating model to thrive in a post-pandemic world.”

Citing his recent experiences in the European market, Hill shared that club leaders are challenged with finding new ways to operate smarter and more efficiently, while also looking for innovative ways to implement sturdy, low-cost solutions that their employees will love.  Which leads to his second point, that there will be a renewed emphasis on what employees love and how clubs, as employers, can provide an enhanced value proposition for their employees.

“As employees get back to work onsite, employers are finding that what their people value from the employment relationship has changed,” Hill explained.  “Where pay has been viewed as largely transactional in the past, clubs may need to provide new types of benefits, especially programs that provide more flexibility, financial security, and empowerment to retain and motivate their people.”

Lastly, there is likely to be considerable movement of talent over the coming year brought on by employees’ new work-life ambitions and financial imperatives, said Hill, “As demand for their skills and experience grows, the very best talent will seek out employers that demonstrate they view employees not as costs but as assets and reflect this in their approach to compensation.”

Recalling our start-of-year prediction that the movement of people and relocation of companies will reshape markets, partner Craig Johnston added, “The relocation of people continues to be a prominent trend and one that is likely to continue in the second half of the year.”  For club employers, it’s not just the changing physical locations which impact the cost and supply of labor, but also the expectations of employees as they seek out competitive new roles and work experiences.

6. The repurposing and reimagining of club facilities, amenities, and member-use areas will continue

The pandemic pushed to the fore the need for clubs to adapt their facilities to match changes in the ways members use and enjoy their clubs.  A combination of practical evolutions for health and safety and circumstantial evolutions drawn from widespread ability for members to work remotely created increased desire for clubs to offer more casual outdoor dining options and spaces to enable members to conduct work while at the club.

Partner Stephen Johnston believes these sentiments will continue to near-term facility improvements at clubs.  “With more flexibility in the workplace and members working from home periodically, there will be a need at the club for members to do work or take calls before their tee time or their lunch date,” he said.  “It has been evident for some time that members generally prefer to enjoy outdoor dining and since, throughout the pandemic, it has become apparent that guests draw greater comfort in outdoor experiences, I see a greater demand for outside patio and food and beverage service.”

As society begins to reopen and communities begin to stabilize, time can only tell precisely how clubs will continue to evolve their operations, whether that be scaling back pandemic-relevant operations or doubling-down on new services and efficiencies.  Evident in our work with clients are significant efforts to reorganize club leaders, reevaluate operations, and retool plans for a successful future in the new normal.  Here are a few highlights of efforts clubs are making for the next normal:

 

  • Reinvigoration of governance processes and engagement of leaders to ensure alignment between boards and club strategic plans.
  • Renewed surveying of members to keep a pulse on how sentiments have changed from pre-pandemic, during pandemic, and currently as communities stabilize.
  • Enhanced adoption and application of electronic voting as clubs reevaluate membership structures, governing documents, and operating policies amidst “displaced” members.
  • Reconfiguring of budgets, capital plans, and long-range financial models.
  • Refinement and advancement of membership marketing strategies, tactics, and materials.
  • Tightening relationships between facility planning, capital improvements, and member communications campaigns.

Tactics for Financial Stewardship in a Crisis (Part 2)

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This article continues a series of communications from GGA Partners to help private club leaders address challenges confronting their businesses and their employees as a result of the global health crisis. Today, in the second of two articles discussing financial stewardship, partner and head of transaction advisory, Craig Johnston, outlines information and tactics which should be considered in developing your club’s financial plans in times of crisis.

As businesses across North America begin to re-open, ever-changing social and economic circumstances further complicate the decision-making process, and now more than ever it is imperative that business leaders have access to the critical information which impacts their business.

In the midst of a crisis, we believe prudent financial stewards should embark on a phased approach to financial planning and analysis. The three phases are:

1. Cash Preservation

2. Sustainability

3. Opportunity

The immediate focus should be on cash and cash preservation. The familiar adage Cash is King takes on even greater importance in crisis situations. Next, the focus shifts to reviewing key risks to long-term sustainability and developing plans to reduce and combat those risks. Once a game plan is understood for sustainability, business leaders should explore opportunities to enhance member experience, reduce operating or capital costs, and increase return on investment.

To navigate these three phases, two critical financial platforms are required: a detailed annual budget and a club financial model.

Often these platforms are considered one in the same, but they are not. A detailed annual budget should be designed on a monthly basis and based on agreed upon key performance indicators (KPIs) and specific circumstances for the year. A club financial model should be designed on an annual basis and based on historical and budgeted KPIs as well as other economic inputs. The monthly budget is important to support cash preservation analyses while the financial model supports long-term sustainability scrutiny and enhancement opportunity exploration.

Both platforms should be dynamic, both platforms should encompass all three financial statements, and both platforms are a must-have. By “dynamic”, we mean easily adjustable for various economic and club-specific KPIs and, by “all three”, we mean income statement, cash flow statement and balance sheet. (Yes, a club should set and approve a budget at the outset of every year, but that does not mean the platform it was developed under needs to be static.)

The information required to develop both platforms include:

  • Historical audited financial statements, including notes.
  • Detailed department financial schedules, including breakdown of fixed and variable expenses.
  • Membership information, including counts, fees, attrition rates and sales expectations.
  • Debt agreements and schedules, including covenant calculations, coupon rates and terms.
  • Labour contracts and employment agreements.
  • Supplier and vendor contracts and agreements, including terms and pricing.
  • Capital project listing, including historical expenditures, reserve studies and facilities plans.

The specific tactics under each phase of planning and analysis will vary from club to club, but some predominant examples include:

1. Cash Preservation

a. Analyze current club liquidity: evaluate the club’s current balance sheet, including available cash, receivables and payables based on an up-to-date budget, then leverage the monthly budgets to assess the near-term (three to six months) liquidity based on estimated revenues and expenses.

b. Scenario analysis: complete various scenario analysis within the annual budget platform (designed on a monthly basis) based on potential closure and re-opening scenarios. This requires a realistic evaluation of the impact of each scenario from department managers.

Based on the results of the above, determine if any near-term adjustments (staffing changes, discussions and negotiations with suppliers and lenders) are required for cash preservation.

2. Sustainability

a. Anticipate attrition rates: depending on the timing of annual dues payments, attrition rates during times of crisis can be significant. Running scenario analysis based on various levels of attrition and their impact on the club’s long-term sustainability is essential.

b. Estimate decline in membership sales: some clubs may rely on entrance fees to support operating expenses, or more predominantly capital maintenance expenditures. Evaluating the potential decline in new membership sales over the short and medium-term, and its impact on club sustainability is critical.

Based on the results of the scenario analyses, scrutinize the club’s operating model to address discrepancies between cash inflows and cash outflows. This may require moderate or significant reductions to the club’s operating profile, including hours of operation and levels of high-touch service, for example.

3. Opportunity

The review of enhancement opportunities may come about during the focus on sustainability, as the club looks at unique ways to better align cash outflows with cash inflows. However, for clubs where sustainability is straightforwardly achievable, the focus on opportunity will follow sustainability. Areas of opportunity include:

a. Staffing profile: use times of disruption to consider changes to your management team and right sizing of your staffing profile.

b. Debt re-structuring: meet with the club’s lender(s) to discuss revised terms to the current debt agreements. Interest rates are near all-time lows, and although the numerator on certain coverage ratio calculations has declined, a preferable rate or term may be available.

c. Capital projects: favorable prices may be available on large-scale projects or purchases during times of crises. Consider moving ahead with large-scale projects if the potential savings are meaningful and there is a high degree of confidence in the club’s financial sustainability.

Navigating through crisis in this phased approach – while adhering to the guiding principles of financial stewardship – will help clubs develop financial plans which offer short-term solutions and lasting success.

Guiding Principles for Financial Stewardship (Part 1)

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This article continues a series of communications from GGA Partners to help private club leaders address challenges confronting their businesses and their employees as a result of the global health crisis. Today, in the first of two articles discussing financial stewardship, founding partner Stephen Johnston outlines the guiding principles for being a prudent financial steward.

Despite the opinions of pundits and experts parading before our television screens, no one can accurately predict how long this pandemic will last or its economic impact. By the same token, it’s impossible to anticipate every challenge club leaders will face in the days ahead. But we can say with certainty that long-term financial stability is an issue confronting every club leader. Those who evaluate the challenge and develop a strategy with both short-term and long-term plans give their clubs the greatest opportunity for success.

From our perspective, actions in these uncertain times should follow these guiding principles:

1. Fairness. Prior to a final decision, step back and ask yourself if the anticipated action is fair for all parties, starting with members and the employees. This crisis will pass, and people will remember how they were treated.

2. Transparency. Do not take anything for granted, especially when it comes to sharing information with employees and communicating with membership. It is important for members to understand and appreciate the conscientious approach and the lengths taken to ensure the viability of their club. Video conferencing and electronic pulse surveys make timely communications and opinion convenient and efficient.

3. Value. It is important for members to understand the club carefully considers the value members receive for their fees, dues and other financial support of the club. The value for money proposition for each club and each member is different; “we’re doing what other clubs are doing” discounts this uniqueness.

4. Ownership. Ensuring members maintain their club participation and pride of ownership during challenging times is critical. Maintaining a sense of ownership in the club will help members appreciate the difficult decisions being made in the face of unprecedented circumstances.

5. Right Things Right. Make sure each critical action or decision is conscientiously considered and prudently implemented. By considering the long-term economic and social consequences of your decisions, leaders often realize that efficiency and cost savings are not automatically the top priority.

6. Think Long-Term. Short-term planning and tactics are the priority. But before executing, assess how the short-term actions affect the long-term plan and vision for the club. Always measure the impact any action will have on cash preservation, club value, member and employee satisfaction. Adjustments to the short-term plan may be necessary to reduce the impact on your long-range strategic plan.

7. Preparedness. It’s easy to say we should be prepared for the worst, but it’s impossible to anticipate every calamity. What we can do is make sure all the club’s business information and resources are readily available. This generally means putting in that extra hour or two each week to stay organized. As we prepare for reopening and the new normal, develop a reopening plan and adjust this daily based on new information which comes available.

8. Listening. We are a firm believer in the importance of empowering the general manager to make critical business decisions. We’re equally committed to the idea that managers need to listen to the ideas, challenges and concerns of their board members, department heads, members and industry and government leaders. Their input and feedback are essential in making informed decisions.

Financial stewardship matters most in times of crisis. Even the most prudent financial stewards cannot anticipate every obstacle they will confront. But experienced, poised, and attentive leaders will follow proven guiding principles to protect the club’s members, brand and overall financial health. In our next article, we will explore specific tactics for developing a financial plan to ensure short-term success and long-term sustainability.

Measure Twice, Cut Once

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Experts in the fields of economics, demographics and climatology tell us that recessions, housing booms, population shifts and catastrophic hurricanes are coming. They just don’t know precisely when any of their predictions will come true, exactly where they will occur or who among us will be affected.

Closer to home, in the business of golf course and club management, it’s also likely we will see irrigation system breakdowns, fertilization miscalculations and budget shortfalls. That’s why it’s wise to plan for what may well be the inevitable as well as the unknown.

Warren Buffett once observed, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” In other words, before the benefits come foresight, a plan and action. With the optimism of the new year now beginning to blend with reality, it’s time to make sure we have our most critical plans in place.

Irrigation plans are fundamental building blocks for every golf facility manager concerned about course conditions. Sound irrigation planning ties directly to the standards of excellence that are part of the overarching agronomic plan. Irrigation philosophy, methods and frequency must support and be consistent with the intended turf conditions for the course. Through attentive practices in most jurisdictions, golf has become an even more diligent user of water as many facilities now rely entirely on recycled water. A sound irrigation plan provides for three important factors: matching water consumption to expected results, measuring water consumption to ensure under-usage whenever possible, and seeking new options for further efficiency where sensible.

Rain Bird’s Bryan Stromme encourages managers to establish realistic expectations for what the superintendent wishes to accomplish. Stromme emphasizes that the system infrastructure and the intended outcomes – turf conditions – must be aligned. He adds that “having individual sprinkler control is critical. The faster you can water, the more efficient your system will be for energy and irrigation effectiveness.”

Fertility plans are mission critical for most golf courses considering the high standards of care and upkeep demanded, as well as the advancing requirements of sophisticated hybrid grasses. The first step in developing a fertility plan is to determine the desired level of course conditions and the corresponding turf standard. While there is no “perfect” fertility plan, the key to the planning process is nitrogen supported by phosphorous. The best plan for each facility also prioritizes environmental impacts to the site.

Nick Kearns, director of greens and grounds at The Oaks Club in Osprey, Florida, says he begins with a review of the prior year’s results and executes biannual soil and tissue sampling on each of his two courses. “Our two golf courses react differently,” he says. “The Heron, the Bermudagrass course, requires routine nitrogen applications. When applying we try to use the BMP rule of thumb of a 50 percent slow-release blend. With the Eagle, the paspalum course, we very rarely apply a granular nitrogen product because it can lead to an increase in disease pressure. The products that we apply to the entire course are 99 percent potassium based with minor elements blended in.”

Capital asset plans are a top priority for golf course and turf and facility managers because of life cycle demands and the time required to sequester and reserve needed funding. Craig Johnston, a partner at Global Golf Advisors in Toronto, says, “Clubs with golf courses and sports fields have an enormous appetite for capital.” He points to three key steps for asset replacement planning.

“First, planners must identify every asset that requires replacement, from the water fountain to the irrigation system,” he says. “One should have a depreciation schedule that lists all current fixed assets, the initial cost of the asset and the life of the asset. Start with this list to take a current inventory of your assets.  Make sure that all assets owned by the organization are included on the list and any assets the organization has sold or disposed of are removed from the list.

“Next, establish the replacement dates required for each asset. Use the depreciation schedule to set a target date for replacing each asset.  Finally, identify the financial resources that will pay for the assets that must be replaced. These days that’s often a hybrid of capital dues, capital reserves, short-term debt and capital calls on the membership.”

This article with authored by Henry DeLozier for Golf Course Industry magazine.

Season Proofing Your Club

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For clubs facing seasonal challenges, maintaining member engagement year-round can be challenging. GGA’s Stephen Johnston provides insights on how to keep members connected to your club – whatever the weather.

Risk. This is the first word that comes to mind for clubs poorly positioned to appeal to existing or prospective members during the off-season.

Increasingly, we are witnessing a changing demand landscape. Prospective members are looking for a club to engage with year-round, one that provides and prioritizes the amenities and programs to support this desire. At the same time, existing members are assessing the value of their membership in the context of how often they visit or engage with their club. If their relationship is closely associated with seasonality, leading to them becoming disconnected during the inclement months, Mother Nature is likely to play too big a part in this value assessment.

Crucially, developing amenities which enhance year-round use of the facility not only helps to attract new members, it also increases engagement and satisfaction among existing members. But how do you realize this opportunity and secure this much needed season-proof longevity for your club?

Where to start

Assuming funding available for new amenities, the first port of call should be to obtain input from both members and non-members. This will provide robust, evidence-based support to develop the case for additional amenity provision.

Naturally, the market will dictate the type of amenity you are looking to add or develop, but – to offer an insight into recent trends – clubs facing seasonal challenges are focusing their investments on additional food and beverage outlets (family dining, more diverse dining options); fitness and wellness (indoor and/or outdoor pools); dedicated areas for children or adults, and high definition simulators or teaching studios.

A number of clubs have taken a different approach to the same challenge, choosing to focus on the corporate side of their business by developing dedicated business centers or expanded banquet areas for special events.

Making it work

Developing a new amenity from scratch is no small undertaking, but the objective, ultimately, is for it to become a meaningful addition which resonates with both existing and prospective members.

From surveying members and non-members, you will have a clear idea of which amenity is most highly prized among members. While this is a solid platform from which to move forward, you are likely to lack the critical detail of how much members and prospects would engage with this new product or service.

My advice is to ask members what their anticipated utilization is before proceeding with additions. Any new addition should be scrutinized from a financial perspective and compared with existing assets. A picture will then begin to emerge, one that determines whether the new amenity is viable, both in isolation and in the context of other, existing assets.

Secondly, complete a market study and invite potential members and existing members to participate in focus groups. This will help to establish whether the additional amenities would make the club more relevant to them year-round. Don’t underestimate the power of taking the time to ask other’s opinions; by showing that you put your members’ opinions first, you may well find the non-members who participate actually decide to join the club themselves, something we have witnessed on numerous occasions.

In any case, research mitigates risk. Be shrewd with your research efforts and focus these on the period before any development takes place. This avoids unforeseen challenges once the work has commenced.

Futureproofing

Embarking on new amenities or developing existing assets should be done with the future in mind. A season-proof club is one which keeps its members continually engaged throughout the year, year-on-year, promoting sustained high levels of satisfaction and an increased propensity for members to recommend the club to their friends.

However, additional amenities alone are not enough to achieve this harmony. To meaningfully realize the benefits of such addition(s), the club should focus on maintaining its standards of excellence and promoting events or programs which encourage use of the club and interaction with other members on a regular basis.

The proactive approach

When you set out to confront the seasonality issue, do so on the front foot; be proactive through seeking guidance from members and non-members. You and your board may well have instincts on how to tackle the issue of seasonality, but these alone are not enough when making pivotal decisions with a lasting impact in shaping your club’s future. Develop a plan, own the process and seize the opportunity that the off-season presents rather than fear the time it comes around.

This article was authored by GGA Partner Stephen Johnston.

Revitalizing Your Club Post-Recession

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Clubs have navigated their way through recessions before, but many are still feeling the lingering effects of the Great Recession of the late 2000s. The result has been a lack of development, particularly in amenities.

GGA Partner Stephen Johnston shows how clubs can emerge from the downturn and offer a compelling proposition in today’s marketplace.

Board Priorities: Add Brand Management to Your Fiduciary Responsibilities

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There are typically three priorities that command the attention of private club boards: (1) developing and using sound strategy; (2) ensuring the financial security of the club; and (3) governing the club responsibly.  However, in these days of over-supplied markets and the ongoing regeneration of many clubs, brand management has become massively important to clubs.

Some board members claim that a private club is “private” and, therefore, not a commercial brand. These outdated beliefs are a sure-fire plan for damaging the long-term brand health of the club.

Private club board members share several fiduciary duties, which include the duties of care and loyalty, such as good faith, confidentiality and disclosure.  Directors’ duties also expand to the responsibility to protect the identity—which may include its trademarks, intellectual property and public-facing images.

Brand Planning and Security

What is your club’s brand? And how is it being protected?

A brand is a small piece of real estate “owned” in the mind of the consumer, according to Al and Laura Reis, authors of “The 22 Immutable Laws of Branding,” a marketing classic on branding commercial companies.  Some board members claim that a private club is “private” and, therefore, not a commercial brand.  These outdated beliefs are a sure-fire plan for damaging the long-term brand health of the club.

Brand health, which means admiration, trust and desirability, is an important duty for private club leaders.  Social media proliferation and unending public awareness and scrutiny of private clubs require the club board to pay attention to the club’s brand.  Club leaders should routinely execute a brand audit to validate the club’s market impact.

Strategic Planning

The club’s strategic plan is its long-term direction and scope of operations.  The plan helps the club stay focused on its priorities, and to fulfill stakeholder expectations.

Board members are responsible to fellow members to ensure that the club has a sound strategy and that the strategy is being faithfully enacted.  Directors are duty-bound to know the club’s strategy and ensure that it is preserved and routinely used.

A sound strategic plan extends for a period of three-to-five years and should be fully reviewed annually.

Financial Security

Directors are responsible to protect the financial resources of the club.  This means that directors must carefully measure the future financial needs of their clubs; plan for the sources and uses of funds; and ensure the economic sustainability of the club.

Economic sustainability requires that the club generates revenues adequate to pay the costs of the operation and to fund future capital needs of the club.

Board members must fully understand the club’s financial capabilities and limitations.  A key tool used to report the financial profile of a private nonprofit, tax-exempt club is a Department of Treasury Form 990, which each director should also understand.

Club Governance

Every club director should strive to provide sound governance to their club.  Effective club governance is built on the regular usage of the strategic plan and a board policies manual (BPM).

A BPM documents the methods that will be used in governing the club.  It also includes a description of the organization, the authority of the board and the manager, and the relationship of the board with the manager/COO.

The BPM is as fundamental to effective club governance as the strategic, financial and brand plans.  It must be developed and used on a regular basis.

Today, governing a private club is a bigger and broader job than at any previous time.  Brand knowledge and management have become just as important to the overall health of the club as other fiduciary duties, such as strategic planning and financial security.

GGA’s Henry DeLozier penned this article for the National Club Association’s Club Director Magazine.

Financial Indicators to Monitor

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What are the financial indicators that the club leadership should monitor to stay strong?

Canaries in a coal mine were the early-warning system that saved miners’ lives before technologies for detecting noxious gases came along.  Just as careful miners took caged canaries underground with them, club directors are wise to protect the club by implementing early warning tools—or Key Performance Indicators (KPIs).

Stephen Johnston, the founder of Global Golf Advisors and a former KPMG senior auditor for major accounts, explains, “The number one duty of every club director is to protect the assets of the club.”  To Johnston, the canary to be watched is full member equivalents (FME) of a club.  FME represents the total annual dues amount divided by the amount of a full-member’s annual dues.  Johnston warns directors that when FME metrics begin to slip, directors should beware.

Future attrition rates and the successful conversion rate from potential new members follow the FME metric.  Attrition signals retention success or concern while conversion rates presage new member recruitment.  Keep these KPIs singing a happy song.

Successful membership recruitment follows a 10 percent conversion rate—from bona fide member lead to accepted new member.  Therefore, this ratio instructs the board and management that the roster of prospective members must be ten times the number of membership openings.  Says Johnston, “If you want to add 30 new members, you will do well to develop at least 300 trustworthy leads.”

In addition to FME metrics, Johnston emphasizes the power of the cash flow statement.  For a club to be truly economically sustainable it must generate revenues adequate to pay the club’s bills and fund its future capital needs.  Johnston advises club directors that the annual “spend” on capital assets should be 7 to 9 percent of annual gross revenue.

The impact of the recessionary cycle caused most clubs to fall behind on capital replacement and maintenance so the cash available to catch up on deferred capital maintenance is a critical early indicator of future financial stress or security.

For the miners, early-warning was the difference between life and death.  For private clubs, monitoring early-warning KPIs is similarly crucial.

GGA’s Henry DeLozier penned this article for the National Club Association’s Club Director Magazine.

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