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A Quick Primer on Golf Course Maintenance Operating Costs

I truly believe most people understand there are two basic ingredients to running a successful and profitable business of any kind, be it golf or widget manufacturing - income and expense. The golf owner/operator has much less control over income, yet there’s generally more emphasis geared towards increasing income. Controlling expenses is equally important as increasing income, as far as profitability’s concerned. After all the basic equation for profit (or loss) is income minus expenses.

Controlling Operating and Fixed Expense

There are two categories of expenses generally associated with any business, fixed and operating expense. Fixed expenses remain somewhat constant overtime, (insurance, utilities, leases, taxes, etc.). Since they don’t fluctuate, the focus of this article will be on operating expense or more exact - variable expenses. Operating costs generally fluctuate with operating activities to some extent (it takes longer to maintain a course with heavy play). Golf course maintenance is generally a production environment, expenses change along with an increase or decrease in production.

Examples of Operating Expense:

• Hourly wages

• Chemical and fertilizers

• Equipment maintenance

• Supplies

• Rentals

• Services

• Training

Operating Expense as a Percent of Gross Profit

Since operating costs are directly related to operating activities, they should be analyzed as a percentage of gross profit. The equation for the percentage is to divide gross profit into each individual operating expense. At the end of each month, calculate the percentage of operating expense to gross profit from the income statement. Once the percentage is calculated, these percentages can be compared to historical data and budget figures.


Expense Control Budget and Forecast

In order to create a budget, the forecast must be created first. The budget is simply a tool that helps control operating expense. The expense budget forecast, oddly enough, is basically a prediction of future income. Once the income forecast is created, the historical percentage of operating expense to gross profit is used to create the overall golf course operating budget in conjunction with a standard of maintenance. The calculation or percentage of gross income for each individual expense account should be used for creation of the budget.

Once the budget is created, expenses should be monitored by the superintendent so that expenditures are kept within the budgetary limits. If any specific areas of expenditures are exceeded, further analysis to determine the root cause should be undertaken. For further analysis of root cause, look at the general ledger expense accounts.

General Ledger Analysis of Expense Accounts

If an operating expense exceeds the budgetary limits, researching the general ledger for the offending expense account should provide the root cause. The majority of the postings to an expense general ledger account comes from the purchase journal. Analyze the purchase journal and look for postings out of the ordinary (miscoded expenses are often a culprit). Also look for dollar amounts that seem unusually high. Often the root cause will stick out like a sore thumb.

In conclusion; it’s best to concentrate on controlling operating expense. Operating savings dollars move without related expenses directly to the bottom line, (no advertising, or cost associated with legitimate savings that do not influence or add to deferred golf course maintenance). A budget should be created and expenses should be contained within the limits of the budget. If expenditures exceed the budgetary limits, further analysis should be conducted to determine the root cause. Following these simple guidelines should help to increase the profitability and financial health of your golf facility.

TO ALL READERS, MERRY CHRISTMAS!

I am in the business of golf; specifically helping superintendents work as well as they can under some of the most critical of situations. I share my information with all - on these blog pages, and I welcome any questions or comments by phone or email (the button on the right for email).

If there is a question or comment you wish to send me, please feel free, no cost, no obligation, no sales pitch. I will once again be presenting a half day seminar on Turf Care Center Planning and Programming at the 2013 GCSAA Education Conference and Golf Industry Show in San Diego, February 4th from 1:00 pm – 5:30 pm. If you have the opportunity I would welcome any contact during week at the conference with specific ideas, comments or questions.

All my best for a great holiday season,

Mike

One of Three Beauties

Last week I found myself on a little spring fed stream in southwest Missouri at daylight. I found three rainbow trout, introduced myself, and sent them back to the cold pure water.

It can't aways be about the grass!

How's Your Business?

For years there have been many shots in the dark on how to craft the best business plan for golf course maintenance operations. The only way to get to the bottom of the deep, dark, murky mess of how much do we do and how much will it cost is very simple:

Craft a basic survey and have your players spend some time filling out the questions, ask what they want in terms of improvements, satisfaction and importance.




Surveys can help define direction of your business-it's simple!


From these comments, as scary as they may be, draft a standard of maintenance. This document should include heights of cut and all routine maintenance that affects conditioning and playability. Don't forget to budget projects and improvements based on the comments, in the example above fairways would be an area to focus on.

Figure what all of this costs based on the standards of maintenance and labor that’s required, that will be your budget. Present these documents to the decision makers. The proof this system works is dramatic in terms of increased play and player satisfaction.

• Survey

• Standards of Maintenance

• Budget

I find it very troubling that so many golf businesses operate without a sound business plan. Once these basic truisms of business are applied to the golf maintenance operation it’s just amazing how well the golf course can be improved, and player satisfaction can be increased.

If your in the golf business and what to know more-click the "email Mike" button to the right.