4 Things Keeping Club CEOs Up At Night

Tuesday, May 12, 2015

There has been a number of reports released of late that identify points of concern for CEOs of national and global companies. I’ve taken these points and adapted them to what I’ve seen happening in the club industry. CEOs need not feel isolated at 3am; you’re not alone and that worry can be healthy if it is channelled into making better, braver decisions.

 

 

 

1. Cash flow, GM%, liquidity and rising debt ratio

Worrying about the budget, declining profit margins and sales, or the need to reduce costs come with the responsibility of being the boss. Economic growth and financial stability feature strongly as a sleep-killer for the conscientious CEO.

 

Three ratios I’d suggest to include on your financial executive summary, along with key GM%s and PM%s are:

  • Operational cash flow ratio: Cash flow from operations/Current liabilities

  • Current liquidity: Total current assets/total current liabilities

  • Historical debt ratio:  Total liabilities/total assets from the previous annual reports.

I would include a paragraph on what the ratios mean for the strategic direction of the business. Insightful and informed financial reporting will raise the CEO’s and the board’s confidence in making good decisions. For example, a historical rising debt ratio may alert the current board to review decision making on significant projects. A shrinking GM% may alert that a price review is needed. Illuminate if the club is borrowing money to meet its short term financial obligations?

 

Operating cash is becoming harder to come by as people’s social behaviour changes and new entrants to the market continue to challenge the club business model. In the past, we’ve relied on events like the races, rugby league, cheap beer and major draws to bring the punters in; Tabcorp has invested into online race betting, rugby league is watched at home, draught beer sales dwindle and the return on major draws is slimming because every club has a $X000s badge draw.

 

Research completed for the strategic plan should not only inform the financial strategy, it should also inform your club’s membership and marketing activities to increase operating cash flow (see this article about the Marketing Ps).

 

“The thing that keeps me up at night is the idea that we have to constantly, constantly innovate and compete against not only the companies that have been in business for a long time, but also the very new ones that are up and coming,” says Dave Kearney, CEO of Boomerang.

 

To do with Integrated Governance >>

  • Historical financial analysis that provides evidence of past decision making quality

  • Template for a financial executive summary with key ratios, a reminder of definitions and what it means for the business

  • Invest in a true marketing strategy, not a marketing business plan.

 

 

2. Should we amalgamate, disinvest or enter into a management deal?

Last week I wrote about four future directions of clubs. Keeping CEOs up at night is when to talk about these futures. Can we trade through? What will it mean for a CEO’s career if there are fewer jobs at the top? What will it mean for the club and community if we sell up or out?

 

To remain as a single entity brings with it the ‘innovator’s dilemma’; the difficult choices a club CEO faces when they have to choose between holding onto an existing market by doing the same thing a bit better than the club down the road, or capturing new markets by adopting brave new business models.

 

However, CEOs of top companies are often on the lookout for strategic alliances or joint ventures that will create shareholder (or member) value. The silo mentality of many club boards requires challenging, and the AICD report that the best mergers or joint partnerships begin with a long history of collaboration.  

 

Robust strategy will identify brave new business models beyond the bar, bistro and gaming room. It will also identify strengths and threats that will assist in building partnerships with complementary organisations. Explore all options.

 

To do with Integrated Governance >>

  • Strategic planning with consideration on leadership and governance, marketing, and community engagement and partnerships.

 

 

3. Board quality

I’ve written before how the CEO is in another middle. Being a quality CEO yet managing up to a low quality board is a sleep-killer. Mainly from the frustration!

 

In my experience, many boards simply do not know that they are low quality. A quick check list is,

  1. We have reviewed its agenda in the past 3 years

  2. The bulk of our board go beyond the baseline mandatory director training and free seminars

  3. We have an active succession plan including identifying women to join the board

  4. We have an independently researched strategic plan that is fully supported and created with an external business professional

  5. We take time to understand the financial results and what it means for the strategic direction of the business

  6. We do not operate the club as is it is an economic silo

  7. Operational discussions, like match reports, are discussed outside the board meeting with a tabled pre-report presented in the board pack.

 

The more ‘yes’ answers, the higher the quality of board. Exceptional meeting standards, strategic focus, skilled incumbents and economically engaged business standards… not too much to ask for the board of a multi-million dollar entity!

 

CEOs want boards to take an informed strategic interest, and active and relevant ambassadorship. It is critical for the board and CEO to have regular discussions on strategy; not just an annual strategic retreat, but at each board meeting. These discussions might be about changes in the external and internal environment, progress against the strategic objectives, or risk minimisation.

 

The board meeting agenda structure is important as a guide to strategic discussions.  For a sample of a strategic board meeting agenda, refer to our website under resources.

 

To do with Integrated Governance >>

 

 

4. Staff

Many CEOs admit feeling overwhelmed by their own to‑do lists. CEOs know they can’t do it all alone, yet middle management has almost disappeared from the club environment in an effort to cut wages.

 

Positions, like marketing, may seem to be a financial drain on the club, until the marketer is removed. It takes a few years, but eventually no marketing (or anti-marketing through poor marketing practices) will be the financial drain. To re-establish a marketing program takes time and more upfront costs. Meanwhile, the hipper, well-marketed and on-trend venue has carved its way into your patronage.

 

With regards to training, poor customer service leaves long legacy issues as people are slow to forgive bad service or poor product when there are so many others doing it better.

 

Overwhelmed CEOs could be hindering strategic vision as they may principally focus on operational costs and revenue with no time to imagine alternative and brave futures. Innovation comes from having the right team and then motivating and rewarding them for new ideas and bold initiatives.

 

To do with Integrated Governance >>

 

 

Why you would chose Integrated Governance

Integrated Governance is a small, agile governance, strategy and marketing advisory service. Together with a career in clubs and membership organisations spanning almost 20 years, we punch above our weight in delivery and insight. Because you’re not paying for our yacht or huge administration team our prices our very affordable with generous payment plans. Ask our happy clients about the results they have achieved using the Integrated Advantage. Amalgamation isn’t the only way.

 

We are ClubsNSW Industry supporters and members of a variety of business organisations.

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