Members Update: Q&A with our Finance Convenor Grant Foster
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As part of our ongoing communications to keep members up-to-date with the club during the current lockdown, Grant Foster, the Club’s Finance Convenor provides a cautious but optimistic outlook for the Club’s future in our special Q&A. As a volunteer, Grant is serving in his fourth year as Finance Convenor having moved back to Peebles with his family in 2016. A Chartered Accountant and the Chief Risk Officer of a large global insurance company, Grant has plenty of experience trying to protect Company Balance Sheets!
1. How do you broadly reflect on the current pandemic?
It’s been a dreadful time of course and while I’m here to address questions about the Club’s finances, frankly that feels less relevant than other things right now, not least the health and well-being of all our family and friends. Notwithstanding that, as the current stewards of the Golf Club, it’s our responsibility as the Board of Directors to manage the Club through this situation in an orderly and transparent way.
2. Will the Golf Club survive the impact of Covid-19?
Yes, we’re much more optimistic than we were a few weeks ago when this all started. Our member renewal rates have come through better than expected and we’ve also been able to access various forms of funding / support which has improved our overall outlook. That said, we’re not out of the woods yet and there remains a relatively high level of uncertainty about the ultimate outcome including the timeline for suppressing the virus itself.
3. How is membership income looking compared to last year?
Our budget for this year was to achieve membership income of £250,000, consistent with last season. At the time of writing, we are sitting at around £200k, or 80% of target. Given the circumstances I think that’s pretty good and so credit to all the members that have been able to support us so far. Nevertheless, we’re still £50,000 short of budget and that flows directly to our bottom line for the year.
4. In order to raise further fees, will the Club be offering a discount to those members looking to renew when the lock-down is over?
No, that would be unfair to those many members who, in good faith, have paid their full fees already. However, we still hope to attract back as many existing (and new) members as possible by making the most of the season that is left. We are planning to pack in as many competitions and social events as possible and our Junior Coaches are also looking at options to extend the Junior Coaching Programme into the early winter.
For those members who aren’t comfortable paying the full fee, we do have alternative membership options available including the new Flexible Membership Category which we introduced at the beginning of 2020 through “Play-More-Golf”.
5. What other income streams have been impacted by Covid-19?
Our second largest contributor to net income is visitor income and we expect that to be significantly impacted by the pandemic. We were budgeting around £80k of visitor income this year, inclusive of buggy rentals and net bar spend. At this point we expect that income to reduce by around two-thirds, and even that might be a little optimistic. Even if government restrictions are fully lifted by June or July there may be less appetite among some of our regular and larger visiting parties to travel this year.
6. To what extent do we rely on bar income within our budgeted income?
In recent years the return from the bar hasn’t been significant and the Board was looking to address that under-utilisation in 2020 by encouraging more events and functions within the Clubhouse. Last year we also opened our restaurant to the public, and after several years of stop-start catering, we were (and still are) hopeful that Harry’s View will get us closer to the success that Jazz enjoyed for many years previously.
In terms of numbers, on the assumption of increased bar activity this year, we originally budgeted an uplift in our net bar from £17,000 in 2019 to £25,000 in 2020. However, with the bar being shut during the current lock-down and for an indefinite period thereafter, we expect the bar margin this year to be at least £10,000 below our original forecast.
7. What forms of support have been available to the Club to help offset the reduction in income?
The Club has received various forms of assistance which I’ll describe in turn.
First, and most significantly, we received a £25,000 Business Support Grant from the Scottish Government which went into our bank account this week.
Second, the Government will reimburse the Club for all wage costs during the shut-down (up to the 80% limit which we are paying those staff). The only employee not in furlough is Steve Borthwick, our Head Greenkeeper, who is doing an incredible job keeping the course maintained for when we return.
Third, the Common Good Fund has agreed to a waiver of next quarters rental payment of £3,925 and will review the position on a quarter to quarter basis thereafter.
Finally, we’ve received a 3-month holiday on our main leasing contract, and although this isn’t a permanent saving it does improve our cash flow position for this year.
8. Have we been able to reduce any of our expenses?
Yes, there are several costs which have naturally reduced during the lock-down including the cost of utilities, cleaning and other general upkeep and maintenance costs. We also cancelled our subscription to Sky and BT Sport which will save us around £6,000 for the rest of the year. Additionally, with the Pro Shop currently closed, we’ve suspended our monthly retainer to Steve Johnston but are hopeful that Steve will be able to reclaim a large part of that through the Government’s scheme for the self-employed.
9. Is there any other cost cutting we can achieve this year, for example wages?
Wages are certainly our largest cost item and so let me break that down by each area of the Club.
First, in terms of greenkeeping costs, it’s our priority to protect that budget and so we will continue to work with Steve Borthwick through the rest of this year to ensure he has all the resources that he needs.
Second, in terms of office wages, we replaced our administration team last year which provides us with an annual saving of around £6,000. Additionally, we’ve brought some of the day-to-day accountancy work in-house which will save us around £4,000 annually in professional fees. With Bill Jacobs now retired, we’re now at the point where we’re running a very lean back-office with our Secretary and two office staff all working on a part-time basis. It would be very difficult to reduce those costs further without impacting service delivery and regulatory compliance.
Finally, in terms of the bar, those wage costs are substantially correlated to bar activity and therefore are expected to reduce in line with the annual fall in bar income discussed earlier.
10. Are you aware of the Members Fundraising and how important will those funds be to the Club?
Yes, I understand we’ve raised more than £7,500 in donations which is incredible and thank you to all the members and non-members that have been kind enough to donate their hard-earned cash. Those funds will contribute significantly to our overall financial position this year.
11. Taking everything into consideration, what’s your best estimate of the total loss for the year?
The budget approved by our members at the AGM in February forecast a loss this year of around £30,000. Our current best estimate is for that loss to increase by approximately £20,000 to £50,000. As I’ve tried to highlight in the commentary, there are a lot of moving parts in that £20,000 variance, and it includes the benefit of several non-recurring income streams and cost savings which are specific to this year. So, while the forecast loss is probably better than most people anticipated under these exceptional circumstances, it hides an underlying reduction in membership numbers (and a potentially significant one) which will need to be addressed going forward. I’ll come back to that shortly (see Q13).
12. Will the increase in our projected loss cause any liquidity problems?
No, I’m very hopeful we’ll avoid any liquidity issues this year. First, we started the financial year (December 1st) with a relatively healthy cash balance of £145,000 which gave us a reasonable amount of headroom going into the new season. Second, the projected loss of £50,000 includes a depreciation charge of £40,000, which is a non-cash item. As such the projected cash outflow from operations this year is relatively small at around £10,000. On the basis that we achieve our reforecast budget, our year-to-year cash balance would therefore remain largely unchanged.
However, it is important to remember that our year-end cash balance is somewhat deceiving (as it is every year) given it reduces quite significantly between December and mid-March (i.e. pre-renewal). Historically that rate of depletion is approximately £25,000 per month. While we are projecting a reasonable sized cash buffer going into that period, if we materially miss our reprojection – for example if macro level factors work against us (e.g. a prolonged closure of the clubhouse beyond our current assumption) - then our cash balances could get very tight in February, March time. In that situation there are a few options we could potentially deploy to provide temporary funding / relief, however I’m hopeful that it won’t come to that.
13. Given the potential depletion in the Club’s membership base, what does the long-term future hold for the Club?
Like many Golf Clubs, our financial position has been uncomfortable for several years now and the pandemic magnifies that situation further. Prior to Covid-19, the Board had already been looking at strategies and options to modify our operating model in order make it more sustainable. To the extent we suffer any further (and permanent) depletion of our membership base, the need for change will be greatly accelerated. It is very important that the Board engages our members during the review of our operating model, and it is therefore our intention to hold a Special AGM later this year where we will present a range of potential options and recommendation to the members for feedback.
14. Finally, can you describe the governance framework in place to manage this situation?
The Board of Directors which also includes Gavin Carruthers, Les Biscomb and Ross Duncan, have been in almost daily communication since the outbreak of the pandemic and have a formal weekly call to review the latest financial projections and other operational matters. We also have a broader Club Committee that provide input into specific areas and that Committee (and its Sub-Committees) continues to meet as necessary to review the situation and plan for the reopening. We’re also very fortunate to have Club Secretary Alan Frain who joined the Club last year. Alan is a seasoned professional who I have the upmost respect for and who brings a wealth of relevant experience to the table. While Alan’s current involvement is impacted by the furlough, he will continue to provide key day-to-day leadership going forward.