Friday, August 12, 2011
Goals Won, History Zero
Does this scenario sound familiar? Roughly four months before the beginning of the club’s next fiscal year, the club manager leaves you a message and reminds you that, “We need to start putting together a budget.” You nod in recognition to this voice mail and go about rescuing and renovating turf before the frost bugs and freeze crickets annual late fall invasion begins on the course. A few weeks go by and you make a few remarks about the budgeting process to the other members of the management team at the staff meeting you’ve blown-off for the past three months, only because you have been teaching your staff “Heat Stroke 101”.
As in years past, you finally ask the club accountant to prepare some background information on your spending habits for the past few years. At the next Board meeting, you mention your progress during the superintendent’s report that the budgeting process has started and ask for any input from the Board and the green committee. Shortly after the board meeting the information you requested is provided to you by the mild-mannered club accountant. It’s now November; time to set goals and determine the timeline for completion of the budgeting process. After several more meetings, careful calculations are made, discussions are conducted and the information is consolidated by the club accountant into a working document titled “2012 Club Operational Budget.” Comparisons are made to the current year’s budget, adjustments are engineered, consensus is achieved and the budget proposal goes before the Board for approval. Once approved, the operating budget becomes the focal point of future management decision-making and analysis of operating results. Congratulations, you now managing the golf course business like our House Spender John Boehner and King of the Flim-Flam Senate, Harry Reid.
A good budgeting process for a club is one that provides information and focuses on both financial and operational outcomes. It provides a supportive environment for making effective management decisions. A good budgeting process is timely and strives to achieve excellence while providing the backdrop for operational control. It details a set of standards to which you are attempting to adhere—the definition of management and control. Furthermore, a good budgeting process should address both the personal and technical aspects of creating this important operating plan. The personal aspects include management and staff involvement, goal-setting behavior and the integration of continuous improvement strategies. Technical aspects focus more on resource allocation, forecasting techniques, probability models and compliance.
Success in 2012 will require a very different approach than was the case a decade ago. In the past few years, the private club industry has faced a variety of marketing, membership and revenue challenges that were unheard of 10 or 15 years ago. Membership in clubs will be increasing focused on value and the ability to become a “One Stop Family” entertainment club.
Budget by Goals, Satisfaction and Importance
What are the identified challenges that will continue without new investment? Is a change needed to your current approach to routine maintenance, revenue generating activities and member retention? Yes, things you do each day will effect revenue and member retention, as a superintendent you must be concerned with revenue generation and member retention, this is your future!
When budget discussions begin, “Why?” should always be the most important question. Why raise or lower cost in golf course conditioning? Why increase staffing, resources or systems? Why invest in a new irrigation system. Simply increasing or lowering percentages across the board will not give you the answers. Your success going forward depends on how well you, as the superintendent, understand your clubs needs, your members' desires, and the solutions required to achieve your club’s goals.
By comparison, think how obvious these decisions would be if the golf course was unexpectedly hit by a devastating tornado or flood, or if the clubhouse burned to the ground. Make no mistake about it, by default, the goals of the management team are shared goals and the successes are also shared.
Many superintendents lament that they have worked years to “get the budget to where it is today”. I contend that in these business climates funds should be allocated where they can attract and retain members. In McMahon Group survey results over the past 6 years from over 120 golf and country clubs the golf course as a club activity and a club feature scored highest among all other activities and features in member satisfaction and importance. I see two significant facts emerging from this data, members are highly satisfied with the golf course, more than any other feature at clubs, and, these assets should be preserved with proper and proportional operational funds.
How would management arrive at a proper proportion of revenue that should be allocated to golf course maintenance? The fact still remains that golf course budgets do not include a revenue side. One simple formula for average golf and country clubs is a dollar amount of approximately 20% - 25% of dues income. Currently most clubs charge higher dues for a golf membership, is the difference in dues from a social member to a golf member the true cost of maintaining and capitalizing the golf course? You see, it’s not easy to segregate an amount from dues to allocate to golf course revenue but it can paint a picture of where a club might want to be. Other revenue sources that can be recognized are guest fees, cart fees, a portion of outing income, a portion of range fees, bag storage, locker rental fees and this list can go on. As superintendent and a member of the management team you should know the clubs revenue numbers.
The above are valid ways to approximate what income could be allocated to the golf course based on a number of clubs and the average of dollars spent on golf course maintenance. However, your managing a business, and if you where the sole proprietor you will want to have profit or in a club’s case money left for capital improvements or more precisely, what we call asset allocation fund.
Initiation Fees – Going, Going, Gone
Slowly, initiation fees are becoming less relevant in the country club world. Only the very elite clubs will be enjoying six-figure initiation fees, and waiting lists. In the not too distant past initiation fees fueled capital improvements, now in addition to dues (a category named “capital dues”) amounts are used to fund asset replacements. In addition, more often than not, clubs are using a dining minimum to balance losses in the F&B department. The question begs an answer; will increases in monthly dues become the knock-out blow to clubs? Will the gap widen between the amount of dues charged for golf memberships and social memberships?
What about the golf course? If budgets are built to support routine maintenance at subscribed levels perhaps the history type formulas could be done away with. If this year you needed X next year you shouldn’t necessarily need X + 3%. List your annual goals and budget what you need, as you become better at your business, you may become better at budgeting and better and more efficient at the maintenance of the golf course you manage.
For an in-depth look at a goal orientated budget template go to:
Goal Directed Budget Template