Sıx Steps for Effective Budgeting

These simple moves can help you make it through the annual numbers dance without stepping on too many toes.

by Don E. Vance, CCM (editor@clubandresortbusiness.com)
October 2007
 

When our owners or Boards issue invitations to the “annual budgeting dance,” we all struggle, as busy club managers and department heads, with never feeling we have enough time to give this important planning exercise the full attention it deserves. We get handed the budgeting template for next year, are told it has to be submitted within 30 days, and vow this will be the year when we won’t wait until the last minute, and instead will find the time to do it right. But a few weeks later, we’re usually still knee-deep in day-to-day issues, in a panic that we’re once again going to end up submitting hastily conceived budget numbers that we’ll find hard to live with as the new fiscal year unfolds.

Even though budgeting is a long-range issue, I’ve found that it’s still best tackled by one of the “golden rules” I’ve learned to apply to just about any management challenge I’ve come across in the club business: “Inch by inch, anything is a cinch. Yard by yard, all things are hard.” Budgeting, like anything else, can be made to be much less daunting when you break down the big task at hand into a series of smaller ones.

Over the years, I’ve come to rely on a “six-step program” that helps everyone on the management team get an earlier jump on budgeting and tackle it in bites that are easier to swallow. I now distribute a full outline of the steps to everyone on the team, about 90 days prior to when I want to have budgets completed:

Setting the Dates
The club business is built around planned events (be they for the membership or internal purposes, such as scheduled golf course maintenance). Most of these occur with easy predictability each year—so it only makes sense to start by building budgets around as accurate and complete an operating calendar as possible. Early in the process, I distribute a copy of the current Events Calendar, and ask department heads to have their portion for the next year’s version ready by a specified date.

Learning From History
Get every department to gather their actual financial data for the current year, as well as the budgets that were set a year ago. All  major discrepancies between what was projected and what actually occurred should be noted, to determine what adjustments might need to be made this time around. Was there an unusual circumstance (extreme weather, significant change in membership) that won’t happen again, or was is just a matter of doing a poor job of estimating, and needing to make sure the same mistakes aren’t made again?

Key Assumptions
Once you’ve smoothed out the historical bumps and have a better basis for what to expect going forward, the staff should take a close look at pending activities in their departments—booked special events, tournaments,  maintenance schedules, etc., for the coming year, and use these to start building new revenue and expense assumptions. Remember to take out any non-recurring costs or income, such as for an unusually large event that is unlikely to take place again in the coming year. The revenue and expense assumptions should then also factor in realistic projections for upcoming levels of golf rounds, cover counts, etc.

People Plans
My experience has shown that most department heads are a lot better at projecting revenues for budgeting purposes than they are at estimating expenses. Whether intentional or not, too often this is where budgets come up short. So I build in some extra steps on the expense side, once again to try to break this part of budgeting down into a more manageable task that will yield greater precision.

Once the Events Calendar, history, and assumptions have been used to determine revenue projections on a month-by-month basis, the first major budgeting exercise on the expense side should be to determine the staffing requirements needed to match those projections. A staffing plan is a simple calculation of the number of manhours required by the number of people needed for appropriate positions. Seasonal adjustments and payroll increase assumptions should be factored in where appropriate. 

Keeping Expenses in Line
Another frequent downfall of the budgeting process is the overuse of the “Other Operating Expense” line item as a dumping-ground catchall. I direct department heads that any recurring expense of at least $50 per month should get its own line item, and anything below that should be consolidated into a closely related line.

Another trap to try to avoid is falling back on expense projections drawn from standard percentage formulas, based on projected revenues. While this can work if you know you’ll be able to hold to specified food costs, for example, it’s not a good idea for costs and elements of overhead that fluctuate according to the volume of business—which is really just about anything. So benchmarking as many individual expense items as specifically and precisely as possible is key.
 
Step 6: Capital Ideas
Capital budgeting is a process—and article—in itself. But it’s important to make sure the annual budgeting cycle includes attention to capital needs—both for the coming year and five or 10 years out.

As your department heads step back from their daily duties to think about what next year will bring, make sure they also use the time to “blue sky” what their operations may look like—and need—over the long run, too.