Tag: sustain

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.

Think Big Entering A New Decade

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Thinking of big changes in 2020?  Writing for Golf Course Industry Magazine, GGA Partner Henry DeLozier shares four macro changes to consider as the new decade begins.

Golf no longer exists in a vacuum, separate and distinct from market forces that shape other mainstream businesses. Gone are the days when golf club and facility managers could operate without a sensitive finger on the pulse of social, environmental and political changes affecting their business. As we enter the third decade of the 21st century, here are four macro changes to be aware of and to use to your advantage.

1. New solutions to labor shortages

Traditionally, labor costs for golf courses have ranged from 52 to 56 percent of golf course maintenance budgets. With increases in minimum wages and the ripple effect throughout organizational charts, labor costs continue to escalate. Derek Johnston, a partner at Global Golf Advisors, says labor costs have jumped as much as 6 percent.

Operators managed the first wave of escalating labor costs by reducing head counts and outsourcing certain activities to third-party contractors. Now, they are being forced to get more creative to deal with what is by far the facility’s single largest line item. Some have reacted by flattening their org charts, eliminating supervisory positions and restructuring responsibilities for some managers and staffers. As a result, staffing levels that ranged from 19 to 25 employees per 18-hole course are in significant decline.

Labor will remain a primary focus and concern for operators in 2020. Suggestions for managing rising costs are to re-evaluate all operational activities with an eye for possible benefits to be gained from outsourcing; take labor-intensive components of your operation and determine how the work could be accomplished more efficiently; and look at non-golf sectors for solutions being implemented in other fields such as hospitality and manufacturing.

2. Increased environmental awareness

Golf courses throughout North America have embraced opportunities to increase their environmental stewardship. Beekeeping, which sustains the bee population and ensures ongoing pollination; bat houses, which address mosquito infestations; and habitat restoration for butterflies, especially monarchs, whose habitat supports pheasant, quail, waterfowl and many other species; have been introduced at many locales.

Making golf courses and their surrounding grounds environmental sanctuaries is resonating with key market influencers, including millennials and women, who are also prime targets for increasing play and membership. Audubon International CEO Christine Kane reports that clubs as sanctuary communities are on the rise nationwide: “Audubon-recognized sanctuary communities have increased more than 20 percent over the past five years,” according to Kane.

Progressive superintendents and golf managers who expand the reach and impact of their environmental efforts will be viewed favorably by community leaders as well as current and prospective members and customers.

3. Expanded reach of social media

Superintendents and facility managers have become important sources of content relevant to club members and consumers. Photographic images of flora and fauna on club grounds are of interest to members who take pride in their clubs’ beauty and connection to the environment.

Instagram and Twitter can be used to show images sourced by staff members — golf course workers, cooks, janitors, golf professionals — who are alert to opportunities to snap butterfly habitats, wildflowers and all sorts of wildlife that call the club home. Such images are often posted to the club website and distributed to club members and visitors as a means for extending brand engagement.

Gone are the days of the cut-and-paste guidance for how to repair a ball mark. The increased relevance and timeliness of today’s news is attributed to the capability and proliferation of social media.

4. Comprehensive planning

The growth of strategic planning (supported by specialized plans for marketing, communications, finance and membership) is another example of general business’s influence on a more enlightened group of golf managers. Just as most any business relies on a strategic plan to guide its decision-making, golf is recognizing the importance of establishing a clear vision that serves to prioritize programming and investment. Top performers rely on data-based plans to distinguish their facilities not only in overcrowded markets, but also with consumers debating their leisure activities and spending. Those facilities that create market differentiation will prosper in 2020 and beyond.

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