Club renovations: How do you make yours a success?
Article by Jessica Redfern
Club renovations are on the up and it’s not surprising.
The clubs industry is built on member support and loyalty, so keeping pace with member demands for modern and advanced facilities is essential.
A good example is a trending request by club members for increased space within gaming rooms, particularly between poker machines.
To meet requests like this, clubs are increasingly opting to refurbish areas of the precinct such as dining and gaming facilities rather than opting for renovation of the whole club.
They are currently updating facilities every 3-5 years in a bid to increase member satisfaction, retain and grow membership, and attract support from the community through additional donations and sponsorship.
If you’re considering a club renovation or refurbishment, how do you make it a success, financially?
Club renovations: The 3 key considerations
The overall success of any club renovation or refurbishment depends heavily on the level of consideration for the three main decision points:
1. Extent of demand for change
Member feedback often refers to updating items such as restaurant chairs and artwork.
Rather than a complete renovation, consider the extent and degree of the demand; the general aesthetic can usually be enhanced by simple and inexpensive modifications, such as changes to lighting or furnishings.
2. Credibility and financial viability
It is imperative that the club considers the costs involved with renovations, specifically the potential to access a lending facility and make regular repayments.
Complete a credit check with a financial institution to indicate the borrowing capacity of your club.
3. Maintenance and accuracy of accounting records
The fixed asset register must be updated frequently to reflect the disposal and purchase of assets. Throughout a refurbishment project, the register should be updated to reflect:
- Asset disposal dates and consideration received;
- Asset purchase dates and cost; and
- Depreciation rates.
Which is the most important factor in your club renovation?
Of the three factors outlined above, the greatest emphasis should be placed on credibility and financial viability.
Clubs should consider the following key questions prior to undertaking any construction project:
- Can we sustain revenue growth during and post the construction period?
- Can we afford debt repayments for the project we wish to undertake?
- Can we achieve debt covenants?
A feasibility analysis will bring clarity to this matter.
It provides a fantastic framework to ultimately estimate the construction budget and forecast the ability to make loan repayments during and after the construction period.
The EBITDA tool
The central feature of the feasibility analysis utilises the financial analysis tool called EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation).
EBITDA is used to forecast business valuations and provides a crucial aid to answering the three key questions referred to above.
Let’s take a closer look at how it helps in each of the three areas…
Review of revenue growth
The ability to accurately forecast revenue growth and a strong cashflow position is often the difference between undertaking a refurbishment or opting for an extensive renovation instead.
Utilised within a feasibility analysis, EBITDA can forecast profit trends and allows for easy comparison of key financial indicators with industry averages.
Feasibility of debt repayments
Using the EBITDA method, projecting the pattern and extent of cashflow provides a significant indication of the volume of debt that your club can absorb.
Testing can compare proposed repayment thresholds and interest rates to determine the most financially viable solution to achieve your desired project result.
Achieving debt covenants
It is imperative to test the feasibility of maintaining debt covenants long-term.
The lending agent can impose positive and negative debt covenants, to state what you as the borrower must and must not do in order to comply.
Financial ratios are typically included as debt covenants to ensure continuous financial viability of a project.
EBITDA easily allows for financial ratio comparisons with common indicators being:
- Debt level vs EBITDA;
- Debt repayments vs EBITDA; and
- Net debt vs net debt and equity.
Coupled with the EBITDA tool, a feasibility analysis provides an extensive review of your club’s ultimate borrowing capacity.
This will help reveal to what degree you can provide a modern precinct in line with the demands of members and that contributes to the longevity of your club.
Summary of considerations for effective club renovations
If you’re weighing up whether to opt for a club renovation, consider doing the following before undertaking any construction project:
1. Invest in a feasibility analysis to review the financial viability of your proposed project and projected revenue growth.
2. Note any assumptions you have made when considering the feasibility of your proposed project, as these can have a significant impact on the forecasted financial viability.
3. Update sectors of the club that attract the greatest revenue or contribute to sustaining member loyalty.
Is your club looking to upgrade, modernise, or renovate?
We can help you conduct your feasibility analysis and make recommendations for the way ahead.
Please contact Karen Mortimore (Director) on (07) 3490 9988 for an initial chat.