Presentation to the Board - Alto Lakes Golf

October 16, 2014

Presentation to the Board

The Common Business Model of Clubs Strategic Benchmarking

Alto Lakes Golf & Country Club

• A Bit of Background

• The Club Benchmarking Mission

• The Common Business Model of Clubs

• Alto Lakes Golf & Country Club Benchmark

• Governance as Leadership

• Summary and Conclusions

• Q&A

Agenda

o Synchronicity – Chance and Purpose Meet

o Greens Committee Meeting at Thorny Lea in October 2007

“We need to spend more on the course because Walpole spends more than we do.”

A Bit of Background

Context

Respectfully…..

but

Passionately

Our Mission and Vision

Healthier clubs, more empowered

managers, and more strategic

boards result by elevating facts over opinion

Why

HowConnecting

each club and manager with the wisdom of

the crowd

WhatThe club

industry’s single, standardized,

centralized data-sharing platform

Our Mission

• The science behind “The Wisdom of Crowds”o Jelly Beanso The Shuttle Challengero The Shuttle Columbia

• Knowing vs. Thinking I Know

• Recognizing the difference between Fact and Opinion

Our Mission

Fiduciary ‐ Honesty and Duty of Full Disclosure of all Material Facts, either known, within the knowledge of, or reasonably discoverable which could influence in any way the principal's decisions or actions

• WORDS in an Opinion Based Environment Too much Too little Not enough

• WORDS in a Fact Based Environment 53% Over 18% Under Increase by 13%

Our Mission

“We are spending way too much maintaining our golf course”

The Available Cash ModelThe Common Business Model of Clubs

The Available Cash Model

Dues, 40%

F&B Functions,

19%

F&B Members,

28%

Golf Operations

11%

Other Income1%

Revenue 2006‐2010

Dues, 76%Golf Operations

21%

Other Income3% F&B Net,

0%

Available Cash 2006‐2010

• Where does the cash to run the club come from and where does it go?o Focused on the Sources and Uses of Operating Cash

o Definitive separation of Operating and Capital Funds (weakness across the industry)

o Initiation Fees, Capital Dues and Assessments are considered Capital funds

• Answering the above questiono Illuminates that clubs are less unique than one may think

o All clubs are subject to a common business modelo Benchmarking Sources and Uses of Available Cash leads to

strategic financial discussion


• Defining Available Cash (Gross Profit)o Separation of Operating and Capital Income (weakness

across the industry)

o Initiation Fees, Capital Dues/Assessments are Capital Income

o Available Cash is the cash available to cover the club’s “fixed” operating expenses

• Defining Net Available Cash (Operating Bottom Line)o The Operating Bottom Line – Breakeven, Surplus or Deficit

after paying for the club’s “fixed” operating expenses

o In a not for profit club, typically converges on “break even”



Membership Dues + (F&B Net = F&B Rev. – F&B Exp.)+ (Rooms Net = Rooms Rev. – Rooms Exp.)+ (Other Net = Other Op. Rev. – Other Op. Exp.)+ (Golf Ops Rev. – (Golf Ops Exp. – Golf Ops Labor)+ (Yachting Net = Yachting Rev. – Yachting Exp.)+ Ancillary Sports Revenue (AFR)

Available Cash = Gross Profit

Sources of Cash are Clear, Simple and consistent for all clubs

CLUB BENCHMARKING

78%

Available Cash Sources Average Club

Membership Dues • Spor & Recreation Yacht Net

Rooms Net - Other Net • Drawn from Reserves

Golf Operations Net F&B Net


Uses of Cash are Clear, Simple and consistent for all clubs

Available Cash‐ Course Maintenance Expense‐ Golf Operations Labor‐ G&A Expenses‐ Buildings and Maintenance Expenses‐ Sports (AFR) Expenses‐ Fixed Charges (Prop & Liab, RE and Prop Taxes, Interest)

Net Available Cash = Operating Bottom Line

.. CLUB BENCHMARKING

Available Cash Uses Average Club

r------11%

23%

10%

- 6uildfngs ft Maintenance - Golf Operations labor - Added to Reserves

Sports & Recreation - G&A

- Fixed Expense(Property Tax Insurance, Interest Exp)

- Course Maintenance

Understanding the IndustryUsing



AllianceAll Clubs

Available Cash as a Percentage of Total Operating RevenueNational 60%


60%

62% 56%

60%60%

Northeast

Midwest

SoutheastSouthwest

West

Course Maintenance as a Percentage of Available CashNational 31%


32%

36% 30%

32%30%

Northeast

Midwest

SoutheastSouthwest

West

Net Food & Beverage income/Loss as a Percentage of Available CashNational (‐3%)

0%

(‐5%)0%

(‐5%)(‐4%)

Northeast

Midwest

SoutheastSouthwest

West


G&A as a Percentage of Available Cash National 23%

23%

22% 26%

24%25%

Northeast

Midwest

SoutheastSouthwest

West


Golf Operations Labor as a Percentage of Available CashNational 10%

9%

10% 10%

10%11%

Northeast

Midwest

SoutheastSouthwest

West


Non‐Golf Sports as a Percentage of Available CashNational 10%

7%

7%6%

11%10%

Northeast

Midwest

SoutheastSouthwest

West


Buildings and Maintenance as a Percentage of Available Cash National 15%

14%

15% 15%

14%14%

Northeast

Midwest

SoutheastSouthwest

West


Fixed Charges* as a Percentage of Available Cash National 10%

12%

9%12%

9%10%

Northeast

Midwest

SoutheastSouthwest

West

*Real Estate TaxProp. And Liability InsuranceInterest Expense


Key Takeaways• There is a common business model in the club industry

• The common model is the Proportionate Sources and Uses of Cash

• The model is independent of scale and geographic location

• F&B is not a financial driver in clubs

• Understanding the Sources and Uses of Cash is the basis of strategic financial dialogue


Benchmarking

16 Oct 2014 Final

1. Total Operating Revenue and Capital Income2. Total Operating Revenue and Available Cash3. Available Cash as a Percent of Operating Revenue4. Available Cash and Net Available Cash5. Net Available Cash as a Percent of Available Cash6. The Proportionate Sources and Uses of Operating Cash7. Available for Capital Investment or Debt Reduction8. Full Member Equivalents9. Annual Recurring Fees – Full Member10. Net Available Cash Per Full Member Equivalent11. Debt per Full Member Equivalent12. Interest Expense as a Percent of Available Cash13. Total Payroll as a Percent of Operating Revenue14. Net F&B Income as a Percent of Available Cash15. F&B Labor Cost as a Percent of F&B Revenue16. Cost of Goods Sold – Food, Beverage17. Full Member Turnover Percentage18. Average Member Age

The Key Performance Indicators

16 Oct 2014 Final

Alto Lakes vs.The Industry

16 Oct 2014 Final

Alto Lakes vs.$4.5 to $8.5 Million

16 Oct 2014 Final


16 Oct 2014 Final

Alto Lakes Benchmark• Calculating Alto Lakes’ Available Cash• Major Revenue Producing Departments

o Food & Beverage, Golf Operations, Other Operating Revenue, Guest Rooms

Net in each Major Revenue Department

Available Cash Calculation Alto Lakes(2013)

F&B Revenue – F&B Expenses F&B Net ($629,406)

Golf Ops Revenue – Golf Ops Expenses(Ex. Golf Ops Labor) + Golf Ops Net $757,791

Other Operating Revenue – Other Operating Expense

+ Other Net $88,698

Rooms Revenue – Rooms Expenses + Rooms Net N/A

Sports, Recreation, Youth Revenue + Ancillary SRY Revenue $2,628

+ Membership Dues Revenue $3,464,845

Available Cash $3,684,556

16 Oct 2014 Final


16 Oct 2014 Final

• Calculating Alto Lakes’ Net Available CashFixed Expense Net Available Cash

CalculationAlto Lakes(2013)

Available Cash $3,684,556

Golf Course Maintenance ‐ Golf Course Maintenance Net

($1,786,865)

G&A ‐ G&A ($804,344)Buildings Maintenance & Operation ‐ Buildings Maint. &

Operation($485,246)

Fixed Charges (RE Taxes, Prop & Liab. Insurance, Interest)

‐ Fixed Charges ($248,043)

Sports, Recreation, Youth Revenue Expenses

‐ SRY Expenses ($14,780)

Golf Operations Labor ‐ Golf Ops Labor ($601,060)

Net Available Cash ($255,782)

Alto Lakes Benchmark

16 Oct 2014 Final


16 Oct 2014 Final

Alto Lakes Golf “Only” Clubs

Alto Lakes vs. Golf Only

16 Oct 2014 Final


16 Oct 2014 Final

• Calculating Alto Lakes’ Available for CapitalItem Available for Capital

CalculationAlto Lakes(2013)

Net Available Cash ($255,782)

Initiation Fee Income + Net Initiation Fee Income $487,999

Capital Dues and Assessments + Capital Dues/Assessments $729,687

Investment/Interest Income + Investment/Interest Income $7,223

Less Lease Payments ‐ Lease Payments N/A

Available for Capital Investment and Debt Reduction

$969,127

Alto Lakes Benchmark

16 Oct 2014 Final


16 Oct 2014 Final

Alto Lakes vs.Gated Community

16 Oct 2014 Final


16 Oct 2014 Final

Summary and Conclusions

• Alto Lakes Strategic Summary Alto Lakes managed within industry norms Payroll to Operating Revenue ratio is well within the “sweet” spot F&B Income/Loss as % of Available above norm for industry but not

unexpected in a “Gated Community” Available Cash Sources at norm Available Cash Uses show Golf Club profile “Dues Engine” strong Strategic Focus – Dues Engine – Alto Lakes member count set – Key is

understanding and monitoring Dues Level Strategic Focus – Capital Needs and Resources – separation of Operating and

Capital budgets

• Clear Mission – which is tangible in the club’s culture• Clear Vision – every club (organization) needs to be DRIVING forward

with purpose – also tangible in club’s culture• SWOT

o Based on member input – especially “newer” and prospective members

• Key Strategic Goals – this year, next 2‐5 years• Capital Reserve Study – professionally and objectively done – 20 year

view. How do Resources meet needs?• Conscious deliberation regarding Optimal, Sustainable Member count• Governance foundation that allows for “administration to

administration” embracement and implementation of the plan• Fact Based Governance culture that allows Staff to run the club – Board

sets policy, oversees Strategy and fosters the culture

A Strategic Plan

Thank You

www.clubbenchmarking.com

Ray Cronin [email protected]

Our mission is to foster healthier clubs, more strategic boards and more empowered managers by elevating fact over opinion.

Governance as Leadership

• CMAA Clubs form a $20 billion industry with the largest single club on the order of $70 million

• Approximately 3,000 Club Boards with 11 people on average… approx. 33,000 people “governing” clubs

• Observation could easily lead one to conclude – the most significant issue in the industry is Governance (actually lack thereof)

• Fact‐Based Governance frames Governance as a process/science as opposed to…..

o A popularity contesto An exercise in seeing who is the smartest person in the clubo A way to push “my” view as to how the club should operate

• The “Great Clubs” – what is the chicken and what is the egg?

Observations

Observations

• Governance model in clubs characterized by significant churn and transition

• Seemingly, transition in Board members causes transition in plans, policies, accounting methods, staff

• The Governance foundation should be independent of the Governors that come and go

• There is little time to educate and assimilate new Governors

Observations

• What is Governance?• What is the difference

between “Poor Governance” and “Great Governance?”

• Where is our club on the spectrum and how do we continuously close the gap?

• VS…….

Observations

• Discussing F&B or greens speed, etc…..?

WHO IS RESPONSIBLE FOR RECOGNIZING THE DIFFERENCE AND CLOSING THE GAP?

• Police Detective, Medical Office Administrator, Two Sole Practitioner CPA’s, HVAC Engineering Firm Owner, Real Estate Lawyer, Insurance Agency Owner, Commercial Plumbing Contractor, Owner Carpet Sales and Installation Business, Retired Managing Editor – Large City Newspaper, Retired City Mayor, Mutual Fund Business Executive, Club Benchmarking Owner

• What are the chances….o There is an innate common view of what Governance is?o There is a collective focus on understanding Governance and

improving our efforts to govern?o There is an ability for the Board to reflect on its own

performance…as opposed to “managing” the Manager, Pro, Superintendent?

Collective Values vs. Individual Values

Observations

What is Governing?

Governance

Operating for Today

Mode I

FiduciaryGovernance

Planning for Tomorrow

Mode II

StrategicGovernance

Making Sense & Driving Alignment

Mode III

GenerativeGovernance

• When Boards overemphasize one mode to the exclusion of the others the net result is poor Governance

• Clarity and alignment emerge quickly with a collective view of the three modes of Governance

• Too many Boards/Board members think of governing only as Mode I ‐ A few Boards get Mode II right

• It is a rare club Board that is even cognizant of Mode III

What is Governing?

Addressing Generative Thinking

• The search for truly unique and value adding ideas

• Thinking before acting

• Withholding judgment

• Realizing it is more important WE determine what questions to ask than it is that I know the answer to a particular one

• Providing a shared sense of problems and opportunities

• Making shared sense based on continuous inquiry

• Generating ideas and alternatives using processes to harness the collective wisdom of the group

Governance as LeadershipType I ‐ Fiduciary Type II ‐

StrategicType III ‐

GenerativeNature of leadership Hierarchical Analytical,

VisionaryReflective Learners

Board’s primary role Sentinel Strategist Sensemaker

Board’s source of power

Formal Authority, relationship with

CEO

Fluid – focused on understanding

strategy

Learners focused on strategy of understanding

CEO/Boardrelationship Top Down Strategic Alliance Think Tank Peers

Key Question What’s wrong? What’s the plan? What is the key question?

Problems are to be…. Spotted Solved Framed

Board Provides Oversight Foresight Insight


Type I ‐ Fiduciary Type II ‐Strategic

Type III ‐ Generative

Poor Governance Red Flags

1. F&B “trap”2. Lack of unified,

fact‐based view3. Little discussion

about optimal, sustainable model

1. Strategic Plan focuses on facilities

2. What about“Dues Engine”?

1. Race to produce answers2. Certain people/sub‐

groups forcing agenda3. Lots of focus on

Manager/Staff performance but little Board self evaluation

Great GovernanceGreen Flags

1. Facts drive aligned view of What Matters & What Doesn’t2. Common view of What Governance Is3. Continuous Discovery and Generation of Value Adding Ideas4. Clear view of future Optimal, Sustainable Model – Dues Engine,

Capital Needs, Governance Foundation5. Continuous Education and Reflection on Governance!6. Able to shift between recognized modes as needed ‐ Balanced

• Fiduciary view only• Lack of robust Board discussion• Board dictates – competition for

answers to questions• F&B discussion fairly common• Divergent views – little to no shared

view of what matters• Plans, priorities, even approaches to

accounting change as Boards change• Little to no outside education as to

Governance or club business

• Understands & acts in different modes• Robust discussion amongst Board

arrives at shared views• Board more concerned with framing

issues than generating answers• Tactical discussions absent

(especially F&B)• Shared view of Governance passes

from Board to Board• Significant and continuous education

to understand Governance and the club business


How Governors are Nominated

• Ties to cliques that “know what is wrong and aim to fix it”

• Have specific technical talents –Accounting, Legal, Construction, other

• Are popular• Want to “Be on the Board”


How Governors are Nominated

• Rational, creative thinkers• Open minded• Collegial – can have a discussion

without having an argument• Don’t need to be right• Team players

Tying Governance to Strategic Benchmarking

• Governance should not be a mystery and it is not solely about by‐laws

• Governance is a process that must be understood and continuously improved

• It is the most critical aspect of developing a sustainable business model and culture in a club

• There are three modes of Governance: Fiduciary Strategic Generative

• Clubs with poor Governance must transition their Governance model or ultimately fail

• Type III Boards are a source of insight and leadership for the Club

MAKING SENSE BASED ON FACTS – The Key Questions/Issues

• 80% of Operating monies are Dues…How Strong/Weak is our “Dues Engine”

• What is our Long Term, Sustainable Business Model… Optimal member count? Where will the future Members come from? How much will they pay? What Amenities/Services will they expect?

• How is our Capital Income Engine? How are our Capital Reserves? How much Capital do we Need?

• Are we allocating our spending in accordance with our Mission and in relation to Industry Norms (The Wisdom of the Crowd)? Is the Mission Clear and Broadly Embraced?

Tying Governance to Strategic Benchmarking

Presentation to the Board - Alto Lakes Golf

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Transcript of Presentation to the Board - Alto Lakes Golf