The tailspin of the years since November 2007 have been economically challenging for both for-profit and non-profit organizations in the U.S., and certainly this quandary extends to the golf industry in general and private clubs alike.
Traditionally, the first impulse among owners and managers facing eroding profitability is to cut services or staff, a somewhat dubious action when considering the long and short term consequences of these actions.
Without falling into a debate surrounding the feasibility of different business models used by the golf industry, especially given today’s distressed financial and demographic environments, there are realistic, mostly overlooked, measures that are available to mitigate revenue shortfalls.
Golf facilities, regardless of their type, essentially have two broad means that can be taken to improve profitability: 1) increase revenues, or 2) reduce costs. Increasing gross revenues when supply is high (open memberships and underutilized golf courses) is extremely difficult to accomplish. However, it may be debated that creative marketing and price manipulation can offer substantial potential to those willing to utilize it. The grim facts remain; if the overall consumer base is not growing; aggressive marketing will serve only to benefit the most creative at the expense of the less creative.
The alternative to raising revenues is to reduce costs. Amazingly, statistics show only a small number (below 10%) of organizations has ever undergone an independent, comprehensive analysis of their expenses, despite the fact that cost reduction usually is so impactful. In addition, depending on the profit margin of the organization, it would require at least three times the amount of revenue to produce the equivalent amount of bottom line benefit that cost reduction can generate – without a penny invested in marketing.
Although most organizations employ accountants, treasurers and/or CFOs, their typical policy is to look only at trends or possibly one-time only expenditures and to assume that the status quo should not be bothered.
It is not meant as a criticism to suggest that these professionals are usually missing the boat. The fact is that they simply cannot be expert in all of the categories of expenses found on any P&L statement. Let’s examine some of the line items that would be found on a club’s books: electric utility costs (including irrigation pump stations and golf cart recharging), internal-equipment maintenance (including that for heating and A/C, restaurant, golf course fleet and waste removal), water supply facility maintenance, IT, telecom and security systems and service contracts, advertising, office supplies, uniforms, bank fees, insurance (of all types), fertilizers and chemicals, human resources, travel, and the ever-popular financing expenses.
Consider the staff size that it would take to establish not only the appropriate “baseline” numbers for these items, but then to have the sophistication and capability to access alternative vendors for them or to re-negotiate existing contracts, if necessary. Fortune 500 companies have entire departments devoted just to this arena; smaller organizations can’t afford them.
It must be emphasized here that we are not speaking of small potatoes in the aggregate when assessing the excess spending in these categories. It would be hard to envision that most clubs of any size would not have variable expenses – i.e., excluding salaries and commodity related supplies – in the million dollar-plus ranges. It is no exaggeration to state that an expense audit would be expected to uncover potential savings, on average, of $200,000 to $300,000 (better than the average of 60 full dues paying members) at this level of expenditures and that, the greater the gross expenditures, the greater the cumulative savings benefit. Additionally, not only can the savings occur in the first year, they recur in the years to follow.
So why is it that more organizations don’t employ an outside consultant to evaluate their spending patterns? In part, it’s because owners and or managers don’t realize such services exist, in part because they first need a nudge from a trusted source before they’ll try something “new,” and in part it’s because they’re convinced their staffs can handle it. Although expense reduction is not the only answer, it is one of the answers, and one which can be accomplished with no financial risk or out of pocket cost to the organization as fees are usually based on a split of realized savings, and then only for a limited period.
Arguably the greatest business book to appear in the last quarter century is Jim Collins’ Good to Great, Why Some Companies Make the Leap . . . and Others Don’t. In preparation for the book the author and his research team identified and examined 11 publicly traded companies that significantly outperformed their competitors for a period of 15 or more years to find out what made them so successful. The findings were sometimes surprising, often at odds with conventional wisdom, but definitive in that they were based on empirical evidence, not business theory.
One of the findings is that all Good to Great companies had a culture of discipline. Quoting from the book:
“Much of the answer to the question of ‘good to great’ lies in the discipline to do whatever it takes to become the best within carefully selected arenas and then seek continual improvement in these. It’s really just that simple.”
If you truly want to strive and survive in this post recession world of golf management your team needs to assess the feasibility of reducing variable expenses. You fiduciary responsibility to your members and owners require it.