Demystifying your 2014 budget

Five guidelines to make the task as easy as possible.

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September 17, 2013

 
Henry DeLozier

Golf facility leaders go into their annual budgeting process with a promising tailwind. The housing economy is recovering in most markets; credit is loosening. Unemployment is improving, and consumer confidence is building. After several years of expense reductions, but bolstered by a growing economy, how should club and course operators be approaching the 2014 budget cycle? Here are five guidelines.


Evaluate variances in the current-year budget. How do this year’s actual results compare to your budget? Variances of more than 5% should be evaluated. Maybe you were overly optimistic? Maybe your execution was off. Beware of line items that were not accounted for in the budget.

The question to ask: “How will we generate different and better results next year?”


Review and refine your scope of operations. The scope of operations describes all that the facility does, including which days and hours the club is operational and which services are offered and on what schedule. In most clubs the scope of operations remains untouched from year to year. But it should be evaluated at the launch of each budget cycle. Refining your scope of operations is one of the easiest and most effective ways to improve performance results.

The questions to ask: “What do our customers and members really want?” And “How can we operate more efficiently and eliminate waste from lightly used or inaccessible services or service times?”


Take a zero-based approach. Don’t rely on a simple calculation of increased expenses. Start with a clean budget sheet and plan each line item for a precise method of operation. Zero-based budgets are built brick-by-brick, with one assumption added to the previous. Any flawed assumption weakens the foundation. Understand and document each assumption in each line of the budget. To build a budget from scratch one must be organized and thorough. It takes time to ask the questions and to find the answers. While zero-based budgeting isn’t easy, it’s the sign of a real professional. The result is a budget that is more thorough and reliable than one produced by any other method.

The question to ask: “Are my assumptions realistic and based on facts?”


Increase revenue expectations. Revenue growth has been stalled for several years. Many operators and managers continue to try outdated programs that did not work in the first place. Customers and club members seek value. Price increases in importance in their eyes when value is lacking. So before you budget for improved revenue, make sure you’re maximizing value.

Revenue increases originate in the following ways:

  • Sell the worst – least desirable – tee (or court) times first. The best inventory sells itself. Revenue growth comes when attention is given to selling what doesn’t readily sell itself. This increase in utilization is like finding new money.
  • Bundle services to provide greater value for members and customers and to support price increases. Think of the Full American Plan at a hotel. A guest pays for three meals per day whether consumed or not. A savvy hotel operator can show you that the breakage – unconsumed meals – holds at about 15%. Can you bundle programs that give your members greater value and improve operational margins at the club?
  • Make popular goods and services available to your members and customers ahead of the demand curve. Can your members purchase anything through your retail outlets? Do you use virtual retailing options to expand access to new and popular SKUs?


The question to ask: “Am I thinking like my customers and members. Am I giving them what they want – recognition, respect and courtesy?”


Attack and reduce overhead and administrative costs. If you have not explored ClubSolutions through the Club Managers Association of America, you should. The cost of property and casualty insurance increases every year as new risks and claims experience are exposed. Most clubs accept increased insurance premiums as the cost of doing business. Don’t give up so easily. Contact CMAA and learn how to reduce this overhead factor.

In addition, property taxes for your facility should be reviewed. One silver lining of the recessionary cycle is that property value in many markets declined. In those markets, property taxes also should have declined. Check with your local taxing jurisdiction to see if your property value declined and if your tax needs to be adjusted.

The question to ask: “Have I explored the possibility of a decrease in property taxes with my local tax authorities?”

The start of 2014 is still more than three months away. But your planning should be well underway. That process starts with the budget.

 

Henry DeLozier is a principal in the Global Golf Advisors consultancy. DeLozier joined Global Golf Advisors in 2008 after nine years as the vice president of golf for Pulte Homes. He is a past president of the National Golf Course Owners Association’s board of directors and serves on the PGA of America’s Employers Advisory Council.