Tag: steward

Tactics for Financial Stewardship in a Crisis (Part 2)

Date:

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)

Date:

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.

Menu