Transitional Golf Management for Asset Valuation
A transitional management strategy is often required either leading up to or following some sort of trigger event – like a purchase, sale or foreclosure. Usually these events have to do with the valuation of the club before a sale or ramping up service levels after a purchase.
Pre-Sale Preparations & Cash Flow
Leading up to the sale of a facility, there are many things that can be done to improve or preserve the value of the asset.
While every circumstance is different, golf clubs are normally valued on some sort of multiple of gross revenues or EBITDA: Earnings before interest, tax, depreciation and amortization.
EBITDA is a standardized measure of a company’s operating performance.
Quick Wins on the Expense Side
A management company will be able to critically evaluate all club financials and operations to find quick wins to help improve performance ratios. We find that the majority of these quick wins occur on the expense side.
Loose procurement practices may have allowed costs to steadily creep upward over time. Depending on urgency and how much lead time we have, we may be able to negotiate more aggressive rates through improved buying power.
From a membership equity and legal perspective, the contractual obligation to pay back equity members when they leave the club is another major source of concern with buyers.
When memberships are selling for $10,000, but there’s an exit list of members who are owed $25,000 each, that presents a substantial liability.
In many cases, we’ll work to erase these liabilities by crafting new language according to member bylaws.
Understanding what buyers are most interested in, and where they’ll typically be pushing back helps golf club leadership to make the appropriate accommodations leading up to the sale of a property.
“The truth is that golf clubs are very complex businesses with many components, social aspects, and evolving micro and macro economic climates. Genuine expertise is very hard to find, and even harder to keep because it is so valuable in a competitive environment.”
Ramping Up Operations Post Purchase
The greatest opportunity for transitional golf management comes immediately following the purchase of a facility.
Before a property is purchases, our real estate experts will advise clients as to which facilities are going to present the most upside potential. Of course, this upside is often disguised, many cases unknown to the seller as well. But, there’s almost always a substantial initial cost associated with tapping into that upside – requiring critical due diligence and consideration.
For example, a club headed toward foreclosure is likely dealing with substantial deferred maintenance in key areas. Prior ownership, recognizing that the bank would be taking over, simply won’t sink any more money into the facility than they need to.
Taking over a new facility usually requires an immediate cash injection to bring golf course conditions up to speed, to perform capital renovations in buildings and clubhouse facilities, hiring and training new staff, and investment in marketing and rebranding to build buzz and start bringing new business in the door.
Lender Controlled Golf Course Management
In recent years, especially during the downturn in our economy, we’ve seen a spike in golf course foreclosures.
The problem banks faced when they took over these struggling golf clubs was that they simply didn’t know how to run a golf course.
Transitional management strategy for lenders is quite different than for private owners in a pre-sale or post-purchase situation. Ordinarily, lenders are simply looking to preserve the value of the asset and maintain course conditions until they can find a buyer.
Many lenders were taken off guard in the early 2010’s after they foreclosed on country clubs that later deteriorated and became liabilities on their balance sheet.
As you’d imagine, outsourcing club management on a turnkey basis allows lenders to focus on what they do best. Meanwhile KPI is busy preserving or improving the valuation of their asset.