Mark walked his two dogs between the 9th and 18th fairways of the Breakfast Hill Golf Course (BHGC) while gazing at the last of New Hampshire’s fall foliage. It was approximately ten years since he had converted his ancestral farm in Greenland NH into the BHGC. Mark’s thoughts turned to his conversation earlier that day with Chris, the club’s general manager. “Chris, I was reviewing the current financial statements and I am concerned with revenue and cash flows from the golf course. I would like you and Kerry to discuss possible changes in membership levels that could help increase revenues and cash flows. When you are ready, let’s meet and discuss our options and their respective ramifications.”
Later that day, Chris poked his head into Kerry’s office. Kerry was the head pro at BHGC.
“Kerry, Mark is concerned about revenues and cash flow and wants us to brainstorm ideas for golf operations. After you take a look at last year’s revenues and costs for our golf operations, you’ll see why he is concerned. Here is a copy of an Income Statement I prepared using last season’s data. Please review the statement and prepare recommendations to increase revenues and cash flows. You may want to include the pros, cons, and implications of your recommendations as well as assumptions and competitive context.”fter reviewing the income statement, Kerry jotted down the following points on how they might restructure golf operations.
Competitive context planning assumptions:
•The golf industry was in the mature-early decline phase of its life cycle. For the last ten years, the quantity of golfers across the country has declined and about 15 percent of golf courses across the country closed due to decreased revenues.
•Competition was fierce. The NH-Maine seacoasts had 12 golf courses within a 15-mile radius of the BHGC.
•The retired demographic market segment comprised the majority of new memberships (many “baby-boomers” were taking up golf when they retired).
•Vacationers and casual golfers comprised the majority of non-member revenue.
Revenue and cash flow assumptions based on current golf course usage:
•Memberships were attractive to the local market because of the reduced cost to play on a per-round basis.
•There were 70 full annual pass (every day, any time) members and 35 weekday pass (M–Th. any time) members. The overwhelming majority of the pass holders play during the morning and, by noon, nearly all pass holders are on the course. Therefore, the course was underutilized weekday (M–Th.) afternoons and weekend evenings.
•The big advantage of pass revenue from members was that BHGC received cash before the season started in late March. (50 percent of membership fees were due at signup on December 1, with the balance due by March 31.) Membership revenue increased cash flow early in the season when it was needed to ready the course.
•Currently, use of the range is included in membership. Our rivals charged an additional fee for an annual range pass. We could assume 50 percent of our members would purchase the range pass.
•Since primarily non-members rented golf carts, we should not expect any changes in this revenue line.
•The majority of non-member golfers played during the afternoons and all-day Friday when they could get a tee time. Perhaps these players might not want to pay the full price for an annual pass but might be interested in an afternoon or weekday pass for a reduced fee.
•Current greens fees for non-members are $44.00 per person per round on weekdays (Mon/Tues/Wed/Thurs) and $54.00 per person per round on weekends (Fri/Sat/Sun).Kerry saved the files and then prepared the following email:
Mark and Chris,
The attached file provides the assumptions and fee structure proposal as a starting point for our upcoming meeting. Please let me know if you have questions or have other thoughts you would like me to include.
Kerry
The next morning, Kerry opened the following email from Chris.
Kerry,
I think you are on the right track with the assumptions and proposals. Before we meet with Mark, please address the following additional questions and prepare a summary for our meeting.
Chris
1.State your assumptions and prepare a Revenue Forecast Schedule by membership level assuming:
•Current actual Annual and Weekday pass member levels remain constant. Use the current income statement to determine membership levels.
•Proposed new membership levels sell out completely.
•50 percent of the members pay a range fee.
2.Analyze the Revenue Forecast Schedule you prepared:
•Assess the effectiveness of the proposal to increase revenues. Your assessment should include the likelihood of success based on the credibility of the assumptions.
•Based on both the revenue forecast and proposed revenue and fee structure, what else would you recommend the BHGC try to improve revenues?
•What additional assumptions should they consider in their revenue forecasts?
3.Prepare a pro forma income statement:
•State your assumptions.
•Assess the effectiveness of the revenue proposal on income.
•Make additional recommendations based on the pro forma income statement.
Prepare a spreadsheet model for the case. Be sure to separate assumptions from the rest of the model and include scenario summary.
Please see the attached tables.