Golf clubs can be prone to short-sighted thinking and that mindset, says GCMA partners Golf Finance, has got to change if they are to survive…
This article is part of GCMA Insights – topical content for golf industry professionals, discussing the things that matter to those who work in golf clubs.
You may have heard of the Stanford marshmallow experiment – a study conducted in which children were placed in a room with a tasty snack, such as a marshmallow or other sweet treat, and told that if they could wait for a short while before eating it then they would get an additional snack as a reward.
Without focusing on the debated socio-demographic findings of the study, we can use the Stanford experiment to shine a light on the decision-making process used in business, and how companies often sacrifice long term benefit for short term comfort.
All too regularly, there is a reluctance or a refusal from management to take strategic decisions because they are unable see past what is directly in front of them.
Sound like a familiar business model? Just to clarify, we’re not suggesting that children are sitting on golf club committees making decisions and eating marshmallows, although that would explain a lot…
Historically speaking, golf clubs are particularly prone to short-sighted thinking. Most know there is a path the business needs to progress along, but ultimately will choose short term over long term – they choose to eat the first sweet.
Economic challenges make these actions all the more attractive. A golf club might scrap membership joining fees, could reduce the cost of visitor rounds, or decide not to buy a new greens machine despite the old one being barely fit for purpose.
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In choosing these options, more often than not they are progressing with the short-term choice with no strategic plan. They eat their sweet as soon as the adult leaves the room, forgoing the longer-term picture.
This mindset must change if golf clubs are to survive.
The key in taking the path to prolonged success is choosing the proper vehicle to take that path – in our analogy, managing the time until the second sweet arrives.
Let’s use a topical subject here.
With rising energy costs, many golf clubs are looking at alternative solutions – one of the most common being solar panels. The numbers involved with such projects will vary massively depending on a multitude of factors, but just as an illustration, a project like this could well cost say £20,000 to install and could save the business say £5,000 a year once in place.
We can see very obviously that after a 4-year period, the savings will have covered the initial outlay and the business will be saving money (and saving the planet). Great result all round.
So, what about that initial £20,000 up front cost? This is a sizeable chunk of funds to be parting with, to only see the benefit a few years down the line.
The answer here is simple – through a finance package such as a Finance Lease agreement, the cost can easily be split into monthly payments spread over a period of 3, 5, 7 or sometimes even 10 years to suit the specific needs of that golf club.
Financing is the path to obtaining two sweets rather than one; crucially, without being concerned with parting with working capital or putting a strain on company cash flow
Another illustration would be the greens mower example. The golf club might view the purchase of a new machine as unjustifiable due to budget constraints, but if that purchase improves the product (the golf course) then the simple return on investment may well be easily realised through increased membership and visitor numbers. And crucially, like the solar panels, this can be financed at a fixed rate over a set period of time to manage the initial investment.
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Given the uncertainty in the world today with various logistical and economic challenges, it is of course prudent for all businesses not to spend money frivolously and there must always be justification for outlay of funds – a purchase must move the needle in the right direction.
Looking at the position of finance options in the current market, while there has been a significant rise in rates over the last 12 months, the Bank Rate remains at a fairly modest 3% when we look at the historical data from the Bank of England.
This rise in interest rates means the cost of financing has of course increased compared with a year ago, but for many purchases it is still essential to manage to cash flow and maintain working capital – and as we’ve addressed, to progress the product.
If golf clubs are to progressively advance, it is critical they see beyond the immediate moment – and that means having a plan to be able to confidently make those strategic long-term decision. So, will it be one sweet or two?
For advice and information, contact the team at Golf Finance at [email protected] or call 01620 890200
*All finance subject to credit approval. Business users only. Golf Finance is an Appointed Representative of Rural finance Limited. Rural Finance Limited is authorised and regulated by the Financial Conduct Authority, FRN 630701. Rural Finance Limited is an authorised Credit Broker and not a lender. We offer financial facilities from a number of funders and a list is available upon request.
This article is part of GCMA Insights – topical content for golf industry professionals, discussing the things that matter to those who work in golf clubs.
Get involved in the debate. To join the GCMA, click here, or to organise a call with a member of the GCMA team, just complete this form and we’ll be in touch!
