S W O T Analysis

For those who may not be familiar, a S W O T Analysis  is defined as is a structured planning method used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture. As one might imagine, this can be quite useful to a golf course or club that is underperforming, considering operational or physical changes or simply seeks to better understand its competitive position.

While best done by an independent source, the SWOT Analysis can be done "in-house" but may lack the objectivity required to be most useful. The SWOT in reality is something that's done by many businesses on a regular basis, but often with no formal framework or plan.  

Strengths and weaknesses are internal to the company (think: reputation, patents, location). You can change them over time but not without some work. Opportunities and threats are external (think: suppliers, competitors, prices)—they are out there in the market, happening whether you like it or not. You can’t change them.  Each is specifically defined below:

• Strengths: characteristics of the business or project that give it an advantage over others.
• Weaknesses: characteristics that place the business or project at a disadvantage relative to others.
• Opportunities: elements that the project could exploit to its advantage.
• Threats: elements in the environment that could cause trouble for the business or project.

As it relates to golf courses and clubs, many look first at the desirability of the golf course itself.  I often hear the comment/question "How can such a great golf course be worth so little or struggle so much?". While certainly there are many internal factors (design, maintenance, level of service, amenities, etc.) that impact a golf course's economic performance, it is often the external factors like location, market competition, untapped opportunity and simple demographics that doom some golf courses and clubs from the start.

Without objectively identifying these challenges, it is impossible for a golf course (or any other business) to understand how to develop a strategy for success.  Yes, one can do a SWOT Analysis on their own, however we've observed on many occasions that the often emotional attachments, politics and pride that come with many golf courses (especially member-owned private clubs) benefit tremendously from having an independent set of eyes and ears to make sure that even the tough questions are asked and that the agenda and plan developed is in the long term best interests of the club, as opposed to a small group of controlling members.

Doing a SWOT regularly is a good way to stay ahead of the competition.

Are Golf Course Values Increasing?

Recently, a study was released touting that the value of golf courses had increased over the past year. The study was based on the average sale price of golf courses.  Like any other property, there are different perspectives on value.  A seller or tax assessor may see a given property as being special, unique and worthy of a premium value.  Conversely, a buyer or banker may look at the property more conservatively and see only the proven, historical economics of the property.

While I will neither concur with or dispute the claim that values are increasing, I would suggest that an average sale price could be a misleading metric for evaluating the state of the golf course market. Rather, the market seems to identify with either Gross Income Multiplier (GIM) or Overall Capitaliization Rate (OAR) indices, which measure a property's sale price as a ratio or multiple of gross or net income economic performance.  

Based on our experience, there have been minimal fluctuations  in these market indicators during the past several years.  This leads to performance.  If a given property is improving in performance it stands to reason that its value will increase.  If not, it may decrease.  The bottom line here is that each property is specific and the only way to evaluate the market as a whole is based on GIM, OAR or similar market indicators based on performance.  The graph above shows a slight increase in GIM, based on the Society of Golf Appraisers investor survey.  Certainly, there are those properties that for one reason or another may command a premium.  In some cases it may simply be for an alternative use in the future.  Are values increasing?  The answer is different for every property.

MANAGING EXPENSES - EVERYONE'S GOAL

Most companies leave  10-30% on the table in operating expenses.  In the golf industry, savings opportunities exist in Food Service, chemicals/Fertilizer, Waste Management, Uniforms & Linens, Insurances, Utilities, P/R Processing, Leased Equipment, Bank Charges and Merchant Card fees.

The Problem: Most companies believe they do a good job of managing expenses, but it will be surprising to most managers that they are still leaving 10%-30% on the table across many large expense categories.  Observation based on 18,000 engagements and with over 700 consultants, validates this viewpoint every day, and it continues to surprise companies by how much, and where, additional savings are found.

The Reasons:  We will begin by exploring how these levels of savings are still possible, without any sacrifice to supplier quality or service. 

How is overspending 10-30% possible? Well, there are a lot of reasons why it is not just feasible that a club or company is overspending but it’s likely.  And most companies are not just surprised at how much savings are found, but where they are found.  It’s usually not where you think it is.

Ed Flanagan, CPA, is a Director in Philadelphia for Expense Reduction Analysts, a worldwide consulting company specializing in managing overhead expenses for clients.

eflanagan@expensereduction.com •  www.expensereduction.com

THE GPA PRACTICE TEE

Some of our recent assignments have included:

PA - Buyer Representation for potential golf property acquisition.

NY - Appraisal of Daily-Fee golf course for possible disposition and tax assessment analysis

MO, IN, NH - Appraisals of 5  ski resorts for potential mortgage financing

NJ - SWOT Analysis for Private Club

NJ - Appraisal of Private Country Club for mortgage financing

VA - Appraisal of Private Club for Ad-Valorem Tax Assessment Analysis and possible support of appeal

IL  - Market Research and Analysis for Private Club litigation support

IA -  Appraisal and consulting for private club

RI -  Marketing of private club property