Archive for November, 2012

Guest Blog: Giving Leasing Proper Credit

Monday, November 26th, 2012
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Don Vance, CCM, CPC Chief Operating Officer General Manager Hound Ears Club

Leasing has long been recognized as a smart financial option that can help to maximize cash flow while minimizing investment outlays.  And indeed, more companies are now acquiring new equipment through leases than through bank loans, according to the Association for Equipment Leasing and Finance.  Over the last ten years, use of leasing finance options in the U.S. has tripled-and while there was a slowdown in leasing activity in the past two years, a recent lease market study predicted that in 2008, because of tightening credit and cash-flow squeezes, growth in this option will be seen again.

Resorts and clubs are very much a part of this trend, with 73% of properties now reporting in industry surveys that they do some leasing, both in their staff offices (for copiers, computers, phone systems, postage meters, etc.) and elsewhere on their properties (for course maintenance equipment, kitchen equipment, furniture, etc.).  The top three reasons cited by clubs and resorts for leasing instead of buying are: 1) to have a better ability to manage their property’s growth; 2) to take advantage of the latest technology; and 3) to improve asset management.

Leasing can be an especially good idea for minimizing initial cash investments when starting up a new club; as a manager who’s been involved in several property start-ups myself, I can personally attest to how they were a huge help in getting us up and running and through those first years.  But I’ve also seen how too many start-up properties can get in over their heads with too many leases.  It’s sort of like college students who sign up for too many credit cards and then find themselves with so many obligations they can’t even pay off their college loans, let alone their credit debt.

But unlike college kids who are probably charging things they really don’t need and should just find a way to live without them, the challenge for club managers is to find ways to strike a pro per balance of their financing options for all of the equipment that’s needed to run their operations.  Usually, this comes down to cash flow-related decisions. Here are some of the key factors that, in my experience, have helped me make the best calls on lease- vs.-buy issues:

  • Replacement Costs– When I arrived at my current club, I found that we had lease arrangements set up for all computer printers. While this might make sense for higher-end laser printers, the price of the inkjet printers that are fine for most departments’ needs have fallen so low, they’ve also become disposable.  Why lease these printers, when they can be purchased for a minimal amount of cash?
  • Changing Technology– Equipment that meets your business needs today may be obsolete three years from now.  Leasing can give you the flexibility to maintain a competitive edge by not only making it easier to start out with today’s best technology, but then also all owing you to upgrade more readily, if the pace of change is such that the equipment soon loses its advantage.
  • Upfront Outlays-Most leases require minimal (if any) down payments, although if you’re with a startup property that hasn’t yet established a credit history, you may find that larger advance costs (or at least an extra month or two’s payments, as deposits) may be involved.  But generally leases allow you to get immediate use of equipment with minimal upfront costs.
  • Payment Flexibility-The number and variety of payment options that leasing companies now offer make it much easier to find an arrangement that works best for a specific need or budget.  There are plans for seasonal or “skip payment” arrangements (good for properties that have significant swings in month-to-month activity); deferred payment plans (which can help hold down costs while you’re ramping up with training and learning how to use new equipment most efficiently and productively); “step down” and “step up” programs (to either start out with larger payments and then lower the finance charges over time, or increase payments in step with improved revenues), and many other creative options.
  • Accounting SimplicityLeasing can eliminate the need for complicated depreciation schedules, because lease payments are generally line-item expenses on your profit and loss statement.  And, because these payments can often be treated as a pre-tax business expense, you may even reduce your taxes, depending on your club’s status.  (As always, you should make sure to get your club’s finance and accounting experts involved with each individual lease-vs.-buy decision; this has become even more critical as the options for leasing arrangements have expanded.  It is also critical to have other sets of expert eyes read the fine print of any leasing contract, to make sure you haven’t missed some hidden traps.)
  • PredictabilityUnlike bank lines of credit that usually have variable rates, lease payments are fixed, no matter what happens in the financial markets.  So if you’re looking to fund equipment over a period when interest rates promise to be volatile, leasing can help lock in some peace of mind.  Remember the 1980s, when interest rates rose from 9% to over 20% in one year?  That’s what drove a lot of the growth in the leasing market cited earlier, because no one wanted to go through that again.
  • Cost of OwnershipA variety of tax benefits can often be gained through “finance to own” leases.  If your property qualifies (again, this is a call your finance and accounting experts will have to help you make), you may be able to deduct a significant portion of a capital expense in the first year of a lease arrangement.  Certain types of equipment are especially well-suited to this path to ownership, including golf cars and other vehicles, course aeration, mowing and other maintenance equipment, and other equipment with long “life expectancies” and an extended projected value to club operations.  (How a lease can qualify to be capitalized in this way is an article in itself-but you should start by becoming familiar with the “four-point test” that’s involved with the process; if a lease satisfies any one of the four tests, it is automatically classified as a capital lease.  The tests include Transfer of Ownership; a Bargain Purchase Option (below fair-market value); Lease Terms Above 75% of the Life of the Leased Item; and Greater than 90% Fair- Market Value.)
  • Year-round EfficiencyFor properties that acquire equipment at different times throughout the year, leasing can help streamline the process, through Master Lease Lines that can be secured to cover ongoing needs.  A discounted rate can be earned for all items cove red by the master lease, and there’s only one agreement to sign.
  • Avoiding “Passing the Hat”In private clubs, this may be the most compelling factor for taking a longer look at leasing right now.  Because of what so many clubs are now spending on major renovation projects that are funded through special assessments, it’s certainly not nearly as easy-or advisable-to try to ” tax” membership through capital dues that fund needed equipment acquisitions.  That often makes leasing more attractive, to help lessen the blow of unexpected expenses, retain more working capital when revenues are low, and keep more cash on hand for future needs.

Lessor Beware

If any or all of these factors lead you to a decision to lease, you still, of course, need to be careful as you proceed with the arrangement.  Beware of early termination charges, term lease costs, and end-of-lease buyout options.  In addition, if at the end of your lease the equipment shows more wear and tear than normal, you may be subject to additional fees; many new properties that have leased their initial equipment have found this out the hard way, getting hit with substantial extra charges at the end of the lease because of the added wear and tear caused by heavy construction dirt and grime.

As with all decisions we make as club managers, its best not to be forced by habit or convenience into any specific financing method.  Every property can benefit from using a variety of financing options, so it’s important to stay flexible.  Yes, it takes more time to look at all of the options-but it can be well worth the effort, to help optimize savings and financial efficiencies for your club.

Article written by:  Don E. Vance, CCM, CPC, Chief Operating Officer/General Manager, Hound Ears Club

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

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How to Fail at Club Management 101

Monday, November 19th, 2012

Failure in club management is a many-headed monster.  The following factors are common to all failing club managers.

  • Don’t bother with a Mission and Vision Statement.
  • Don’t define and reinforce your organization’s values.
  • Don’t bother with planning.
  • Don’t create a written operations manual made up of standards, policies, and procedures.
  • Don’t treat your employees as if they mattered.
  • Assume every manager and supervisor you hire is a strong leader.
  • Don’t bother to delegate.
  • Don’t bother to communicate your expectations to your employees.
  • Don’t develop meaningful work plans for your subordinate managers.
  • Don’t hold anyone accountable.
  • Leave legal and liability issues to chance.
  • Don’t worry about internal controls.
  • Expect that safety and security will take care of themselves.
  • Let your clerical staff handle human resource matters.
  • Don’t bother creating an employee handbook.
  • Don’t benchmark your operations.
  • Assume your subordinate managers know what they’re doing.
  • Focus as much time and energy as possible on currying favor with members.
  • Don’t worry about professional development for yourself and your managers.
  • Don’t expand your knowledge and skills by reading management and leadership books.
  • Assume the details of your operation will take care of themselves.
  • Blame your managers and staff for any failures.
  • Be more concerned about your perks than the nuts and bolts of your operation.
  • Get as many freebies from the club as you can.

How to Fail at Club Management 201:  Fail to recognize how your example from 101 above sets the standard by which your managers and employees conduct themselves and the club’s business every day.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers — those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

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Becoming a Service-Based Leader

Monday, November 5th, 2012

Developing leadership skills is not memorizing a list of things to do or not to do, though such lists are useful in helping students learn.  Leadership is not the accumulation of managerial abilities, such as budgeting, computer skills, or the specific work skills of a particular industry, though such aptitudes will certainly enhance your overall skill set and add to your competence.  Leadership is not a position or a title.

Successful leadership depends on the quality of relationships between a leader and followers.  As such it entails relationship skills-the personal characteristics and abilities to connect with and inspire the enthusiastic efforts of a diverse group of people toward a common goal.

True leadership requires an understanding of what makes people tick-individually and in group settings.  It requires sensitivity to the needs and desires of others, even when they may not be able to adequately define or communicate these themselves.  It requires openness and accessibility so followers are comfortable bringing their concerns and issues to the leader.   It requires a person who is self-analytical, who examines every less-than-optimum outcome for improvement, often discovering a better way to interact with followers.  It requires a person who puts the needs of the enterprise ahead of personal ambition, who recognizes that tending to the group welfare in a disciplined way will ultimately bring about better performance.

Finally, learning leadership skills is not a one-time event.   Just as different endeavors and levels of organizations require different skill sets for managerial success, leadership skills must expand and develop as the individual moves up to higher levels of responsibility.  Satisfactory leadership skills in a front line supervisory position are clearly inadequate for the challenges of a general manager, division manager, or president of a company.  But the skills learned in the early years of one’s career will be the foundation for the broader skills necessary when one takes on greater responsibilities, particularly if you understand that true leadership is a lifelong journey, not a destination.

The Single Most Important Requirement to Becoming a Service-Based Leader

Becoming a Service-Based Leader is a transformative process; it’s about personal growth.  The student must be prepared to challenge ingrained attitudes and beliefs about self and others.  It requires a willingness to closely examine motivations and habits.  The emerging leader must also be willing to accept personal responsibility for his or her life and decisions.  But most of all it requires a great deal of personal honesty.  Self-delusion and denial are the committed enemies of personal growth.

As you progress through your career, make a promise to yourself.  Promise that you will search the depths of your being to get to and understand your deepest motivations, not those that you glibly repeat because you have so often heard others say them and think they’re the norm.  True leadership is not the norm, and becoming an effective leader will require you to step outside your comfort zone and confront the beliefs and attitudes you hold, not from conviction but from unexamined habit.

The Rewards of Service-Based Leadership

Developing the skills of a Service-Based Leader will reward you in a variety of ways.  First and foremost, I believe the foundation of Service-Based Leadership and a recognition of the value of people in all you do, can, over the course of a career, lead you to the Level 5 Leadership that Jim Collins found at the top of all Good to Great companies.

Second, because Service-Based Leadership is all about developing successful relationships, it can bring success to other parts of your life-your family relationships, your friendships, and the way you interact with people wherever you meet them.

Lastly, Service-Based Leadership will help you develop the self-analytical skills to examine life’s challenges and better understand how you react to them. Ultimately, it will help you to grow as a person and learn to face difficulties with greater equanimity and purpose.

Excerpted from Leadership on the Line – The Workbook, Ed Rehkopf, Clarity Publications, 2009

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers — those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

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