With this issue being about renovations and improvements to our clubs, I thought I would take a rural theme. Not only because I enjoy the rural elements of Australia, but because there may also be similarities between the club industry and farming. Stick with me and it might become clearer!
Undoubtedly the topic of conversation when talking to club managers revolves around what is happening in the industry. Managers are keen to find out how the industry is performing as a whole, and if their trials and tribulations are being felt on an industry basis. Be assured that no club is an island.
And it is surprising how closely our clubs tend to cycle through the business cycles. It is very common for clubs to have the same good and bad weekends and months. I suppose we are all reliant on the same disposable income, and consequently the economy as a whole influences our trading.
I touched on this last month, and as a result of this, I find that clubs are always looking to see how they are trading in relation to the industry. In this sense industry benchmarking has been playing an important role. The operating percentages of our clubs as well as the daily poker machine averages provide us with an indication of our performance compared to the entire industry.
However, I am also aware that benchmarking can be misleading if it is not carried out over a large enough sample, and this can be disheartening. I have always been a big fan of benchmarking as it provides me as a manager something to aim for and also helps to quantify my performance. If my performance relies on the bottom line presented to the board monthly, then I’d like to know how the rest of the industry is performing as well.
Apart from benchmarking, I am often asked by clubs, how much they should be ‘donating, gifting, paying’ to their sporting/affiliated arms. There is often conflict between a licensed club and the sporting/affiliated body as to how much money they ‘need’, ‘are entitled to’ or ‘deserve’.
Managers are very often between the classic ‘rock and a hard place’ as they try to balance running the business and satisfying the needs of the associated bodies within the club. What makes it more tenuous is when the board (the boss) has more interest in the associated body than in the licensed business.
In fact, the common phrase amongst managers is ‘they are treating us like a cash cow’. There’s the farming analogy, get it?! Unfortunately, it is true that successful and profitable clubs are brought to their knees by being treated as a bottomless pit of money.
So is there a solution? Well, there probably is, but again unless all parties are agreeable to the strategy, then this topic will continue to harm clubs and give managers nightmares. I’ll refer back to the benchmarking mentioned earlier.
A great indicator of the club’s performance is the EBITDA (Earnings Before Interest Taxation Depreciation Amortisation). This indicator is embraced by our lenders, so you really should talk to your bank manager to find out what their level of comfort is. Also, have a look at your bank loan covenants to see if you have any EBITDA requirement.
In fact, our bank manager sets our EBITDA for us. If we want to continue to improve our club, which undoubtedly means borrowings, then we must hit certain targets to allow those borrowings to be implemented. When we consistently hit the targets set by the bank, then we know we are able to borrow for more improvements.
My suggestion to clubs who have internal battles over the allocation of money would be to talk to your banker. Ask them what they expect from the club and what the club must produce to enable it to continue to grow and flourish.
The industry benchmark for EBITDA is around 12% to 15%. It has been argued by smarter people than me, that trading below 10% EBITDA could be fatal for the club. Around 15% gives the club a profitable level which enables it to reinvest in the business, ensuring the cash cow continues to produce.
Wouldn’t it be a wise move to set the industry benchmark as the level over which the licensed club can support the associated bodies? That way money is reinvested ensuring the survival and growth of the licensed club.
So there you have it. Feed your cow and she’ll keep on producing! The clubs mentioned in this issue look like they have their cows in a pretty good paddock.