Another Hypothetical

[Mike Cirba]

Let's say I'm running a 36 hole muni in the northeast where I'm keeping maintenance costs pretty modest and get very small margin from Food and Beverages or other fringe bennies.

About where in the ballpark do I need to be revenue wise annually to break even?

I understand there's some variables such as Property Taxes and Capital Depreciation, but let's say those are average so what's the general range?

Can I stay healthy at about 1.5 million in annual  revenues?

[Tom_Doak]

That would depend entirely on your point of view.

How much would you have invested in the place?  How much would you borrow?  If you've got private investors, what sort of return do you need?

Mom and pop courses have none of the latter expenses, and look at the property as providing them a living wage.  Investors wanting a 20% return are another story.

[Mike Cirba]

Tom,

Let's just say I'm running the course and don't have prior investments in aquisition or construction to recoup, so no prior investment.

I'm coming in clean to an existing facility so I just have my revenue/expense balance sheet to consider, but I also need to put some capital $$ into the place to keep it functional.

I have other holdings, so I have some economies of scale that I can leverage.

About where do I need to be in terms of annual Revenue to stay in the black.

[Patrick_Mucci]

Mike,

It's solely a function of your expenses.

They'll determine what your revenue needs to be in order to break even.

You should do a line item analysis

[Dave McCollum]

Mike,
Tom and Pat are right: impossible to know.  However, you said it was a muni and many muni budgets are part of the public record.  Search around a bit and I’d bet that you will find something comparable to your hypothetical.   

My two cents aren’t worth that as I am one of those mom and pop operations.  As much as these readers detest them, carts are the cash cows for most courses.  Generally, everything you take in on green fees, passes, etc. will go toward maintenance.  Breaking even on F&B depends upon generating more traffic than simply golfers—outings, catered events, a lunch crowd, weddings, are examples. 

My first reaction was that $1.5M might be around a breakeven point if you did everything right and very lean.  I would expect your gross to be higher, however.  Could you do 60,000 rounds?  Just guesses, of course, because I don’t know your market.

[Jim_Kennedy]

Mike,
Why don't you just drive over there and ask them?

[Mike Cirba]

Dave,

Thank you very much for your real-world perspective.   I would think it should be very possible to get to 60K rounds, and in flusher times, even historically did as much as 80K and above for the facility.

In recent years, starting around 2004, that number has dropped to about 40-45K on average for a variety of reasons.

[Kyle Harris]

Mike,

The increase in rounds will drive up some of your costs.

20k rounds is a HUGE jump in terms of wear/tear on the golf course.

[Jon Wiggett]

Mike,

The increase in rounds will drive up some of your costs.

20k rounds is a HUGE jump in terms of wear/tear on the golf course.

Kyle,

Mike doesn't have any costs at the moment and would 30K of rounds per course be so difficult for the course to deal with without driving the costs up sky high?

[Kyle Harris]

Mike,

The increase in rounds will drive up some of your costs.

20k rounds is a HUGE jump in terms of wear/tear on the golf course.

Kyle,

Mike doesn't have any costs at the moment and would 30K of rounds per course be so difficult for the course to deal with without driving the costs up sky high?

Wait, doesn't there have to be a golf course for there to be rounds to be played? He's running a 36 hole muni and seeking to increase rounds....

As for the second part of the question - that depends on the agronomic condition and management ability. An extra 30k rounds is an extra 30k divots on Par 3 tees, etc.

Or if this hypothetical golf course had a hypothetical near-island green on the third hole with only one point of exit/entry - another 30k foot prints across a relatively small portion of green.

[archie_struthers]

 

Mike the analysis is pretty hard to do without analysing the investment....cost of acquisition/ construction. This is my standard gripe with muni's as the politicians view them.  For instance at our competitor McCullagh's Emerald Links they say they break even...it's so disingenuous...they spent more than we did at Twisted Dune to build it..around $11m....and claim they break even ....what a joke....they don't count debt service or equipment purchases in their "numbers" that we see

then they don't pay taxes ...got a free liquor license etc etc ...oh I digress LOL


For a decent public golf course you are going to spend close to a miilion a year in maintenance and cap ex in our area (NE)...this is pretty lean for 36 holes assuming 5% cap ex...this includes super and staff salaries

property taxes are going to be $125-175k per year salaries another 200k including minimal health insurance for key employees and payroll taxes for GM/ Golf Professionals / outside services ...bookeeper assistant  and general administrative costs....minimal advertising cost of goods etc

 property/ casualty ..and liability insurance is going  to be in the 50K to 75k range  miscellaneous 10% another 140 k ...so your 1,500,000 per annum is pretty good   however this assumes no debt and no ROI

[SB]

$1.5M in total is close, maybe just a bit shy for a breakeven number, depending on how far northeast you are, whether you pay for water or not, and some other basics.  That's assuming most of that is not F&B and merchandise, and you're maintaining it like a muni, not a high end daily fee that happens to be owned by a municipality.  There isn't a huge correlation between rounds and expenses.

[Mike Cirba]

Guys...this is some really good information, and I appreciate all the input.   Archie...I do understand your issues with munis and unfair advantage, as well,, and my personal belief is I'd rather see them in the high pop areas like major cities, where no one could afford that much high-value real estate acreage and keep it as greenspace but the government.  

Just was doing some poking around and found a 2007 Joe Logan article about Jeffersonville that had Ron Prichard do a restoration in 2003 for $2.3 million.

Prior to then they did mid 30K rounds, tops, but the article states that the prior year (2006) they did over 42K rounds at a max of $45 with cart, which is a very nice deal for the present quality/condtioning.

Not sure if they've been able to maintain those type of numbers per annum (we're digging a little deeper)  or what the balance sheet looks like right now, but those numbers are for an 18 hole course, and seem to indicate some robust activity there.

[Adam Clayman]

Mike, Your comment about small margins on F&B and other peripherals sounds like a potential source of lost revenue. Most of the Pop, candy, nuts and Gatorade I see sold, have significant margins. Why not at this place?

[Mike Cirba]

Mike, Your comment about small margins on F&B and other peripherals sounds like a potential source of lost revenue. Most of the Pop, candy, nuts and Gatorade I see sold, have significant margins. Why not at this place?

Adam,

Seems to me the kind of place where guys huddle around and grab a coffee, perhaps a Danish in the AM or Dog at lunch, and that's about it.

No nonsense, if you know what I mean...

[Jon Wiggett]

Mike,

The increase in rounds will drive up some of your costs.

20k rounds is a HUGE jump in terms of wear/tear on the golf course.

Kyle,

Mike doesn't have any costs at the moment and would 30K of rounds per course be so difficult for the course to deal with without driving the costs up sky high?

Wait, doesn't there have to be a golf course for there to be rounds to be played? He's running a 36 hole muni and seeking to increase rounds....

As for the second part of the question - that depends on the agronomic condition and management ability. An extra 30k rounds is an extra 30k divots on Par 3 tees, etc.

Or if this hypothetical golf course had a hypothetical near-island green on the third hole with only one point of exit/entry - another 30k foot prints across a relatively small portion of green.

Kyle,

Mike is not already running this facility as far as my understanding of the thread goes. He was looking to find how much it would cost if he did. Also, he asked about an increase from 40ish Ks to 60 ish Ks which is an increase of 20ish K over 2 courses not 30 ish K over one as you are suggesting. With your ability to massage stats and figures are you a politician?

[Mike Cirba]

Jon Wiggett,

Yes, your understanding is correct.

I'm trying to determine utilization thresholds as relates to profitability.

For instance, in my example I mentioned Jeffersonville, a single 18 hole course having 42K rounds a few years back, which to me is about what I'd expect to see in a busy northeast urban area.  

I'm not sure why 60K for two courses shouldn't be easily attainable, in theory, and I think Kyle's point is simply that more traffic brings with it some additional maintenance concerns and probably costs.

[Dave McCollum]

I don’t think maintenance goes up proportionately with more rounds.  It certainly does not go down with fewer rounds.  Maintenance expenses have a way of increasing each year on their own regardless of play.  Expenses might go up a bit with more play but not enough to significantly affect the benefits of more revenue. 

We don’t pay much for water despite being in the high desert with little rainfall.  We have and use plenty of water—up to 400K gallons a day in summer on an18 hole track.  Paying for water is a huge factor in budgeting maintenance.

It’s not the margins on food, beverage, or for that matter the golf goods in the proshop that is the main ingredient in making money.  It’s the labor to sell these things.  Watch your labor and COGS very closely.  One cook can handle 2 or 50 people, depending on the menu.  Matching staffing with traffic is very important.

One thing almost never mentioned about the golf business is how heavily weather dependant it is.  Ideally, you have a facility that can be staffed accordingly.  For example, during early spring and late fall one person could serve drinks and do a little cooking.  On really bad days, our proshop people tend bar.  They seem to understand this better in the UK than in the US.  They don’t wait on tables—you fetch your own drinks from the bar.  Clubhouse kitchens are behind the bar so one person can run both.  Good, efficient design really makes a difference, but seems lacking in most clubhouses, especially private clubs.  No wonder dues are so high. 

[Jon Wiggett]

I would agree with Dave that the cost of maintenance does not rise proportionately with the increase in rounds. Wear an tear depends on so many factors including weather, soil type, grass type, ability of the design to spread the traffic.

[Tim Nugent]

Mike, much depends on your business model.  Since you state you are looking at a bread & butter operation, here's what I would contemplate.  Assume F&B is break even, just a grill operation, not full kitchen.  No wait staff, only counterman/grillman/bartender - all the same guy.
Pro shop - 1 general manager, preferably a women who can do the back office accounting, 2 shifts per day  Dawn-2, 2-close.  1 helper. Inside 1 assit mngr, 1 helper, outside 1 starter and 1 ranger/range attend, if your place has a range.  Gen. mngr works 8-5 to cover both shifts and the shift change.
Maint. - w/36, you can go a couple ways but I would figure 1 Super and 2 assit.  Assit should be able to do Irrg and spray duties. 1 mechanic and 18-20 workers.
I would hire as many retired or part-timers as possible. Teachers, fireman and others who have days or summers off. Also empty-nest women.  You'ld be surprised how many people want to work but only a couple days a week.  This holds down # of full-time workers who need benefits. You might end up with as many as 30-40 workers but some may only work 1 or 2 shifts/week and it's easier to get someone to cover a shift if someone can't make it in.  Also, it's easier to call-off workers when the weather is bad if they aren't counting on the paycheck to make rent.
Trade-off golf/range for lower base pay. Any employee who isn't friendly, is argumenative, or causes friction - FIRED.  Once you put together the right atmosphere, and keep the course in decent condition, your rounds will take off - especially if priced right.

Also, make an effort to to do one or 2 small "projects" on the course each season.  If the golfer see that money is being put back into the course, they tend not to bitch as much.

With a program like this, you should be able to staff the clubhouse for about $500,000 and the maint for about $650,000.  So with materials and expenses, you can see how $1.5m is entirely in the ballpark but I'd be more comfortable closer to $2m until I knew what the taxes, insurance, utilities were.  Also figuring that some capital re-investment is probably going to be needed.

If done right, you should be able to use a portion of the increased rnd rev. to offset the capital re-investment expenses.  I would hope that you could get rnds up 60k for 36 but would never budget for more than 90-110% of the previous yr (high/low budget).  Start building that rainy day/yr fund ASAP.  If you can make it work on 40k rnds,  and don't fall in love with one or 2 good yrs, you should be able to weather the cyclical nature of the business.  That's $55/rnd to break-even.  At 50  $44/rn BE, at 60k - $36.66.  Conversly at 60k, you could be netting $1.1m for that fund (and winter in Fl).

I realize this is back-of-the napkin and there are lots of variables to consider, but it's a way to start to thinking about these things.

[Mike Cirba]

Dave/Jon/Tim,

Thanks for your time and very thoughtful answers...I'm very appreciative.

[archie_struthers]

 

Mike C ...read the analyses  and no one seems to factor in the cost of the money....even at todays bargain basement prices for golf courses you've probably got to come up 2-2.5 million $  for a decent 36 hole layout , even a low end property ...if less then the location probably won't justify having 36....it's very hard to  play 60,000 rounds in todays economy and average $55 per round , as scary as that seems the round prices might be close to $40 ...a break even in Tim's excellent analysis....as an aside it would be nice to have a PGA professional on board .. perhaps he can augment his salary  w/lessons and clinics ...good for growing the business

 ...it's really challenging for golf course operators and will be until more courses close...which seems to  be inevitable...