Managing Finances

1. Managing Finances chapter 10

2. Expenses • Numerous expenses have an impact on recreation facility management. • A large percentage of all recreation agency expenses revolve around facilities and their employees, maintenance, utilities, repair, and renovation. • Typical recreation facility expense categories can be broken down into two broad categories: structural expenses and support expenses.

3. Structural Expenses • The presence of a recreation facility as a structure creates structural expenses. • These are expenses associated with maintaining or improving the physical structure of the facility and can include repair, renovation, and retrofitting. • In addition, structural expenses can include loan or mortgage, depreciation, taxes, reserve, and insurance.

4. Repairing, Renovating, and Retrofitting • Over time, facilities and equipment deteriorate, no longer fulfilling their original purpose. • When this occurs, expenses are incurred to keep them functional. • All of these situations require proper planning and budgeting.

5. Loan or Mortgage • One of the greatest ongoing expenses for recreation facilities is the monthly or quarterly loan or mortgage payments for construction or purchase of a facility. • This arrangement can be in the form of a bank loan or bond payment and commits management to repay the debt for the purchase or construction of a recreation facility over a predetermined time.

6. Depreciation • The decrease in value of recreation facilities and equipment by a certain percentage each year is called depreciation. • As soon as a recreation facility or piece of equipment is purchased, it begins to lose value. • The amount depreciated can be recorded as an expense for tax purposes.

7. Taxes • Public recreation facilities may be exempt from paying certain taxes on income generated from a product or from paying property taxes. • Private facilities can be at a serious disadvantage when they are in direct competition with a public recreation facility that has tax support as income in addition to not paying taxes due to its public status.

8. Reserve Fund • To protect against having to spend funds from the daily operational cash flow, a reserve is created as an expense management category. • A reserve fund is a sound fiscal practice of setting aside money for potential facility problems.

9. Insurance • Insurance should cover potential losses for management with a policy that defines the conditions for coverage. • Several categories of insurance may be necessary at any given recreation facility: • Liability insurance • Accident insurance • Workers’ compensation • Property damage or theft insurance

10. Support Expenses • The second general expense category includes costs that support operations. • It includes expenses associated with employees, maintenance, equipment, utilities, and contractual services.

11. Employees • One of the greatest expenses for recreation facilities is labor costs. • Several expenses are created by the people who keep facilities and equipment functional: • Salary • Hourly wages • Payroll taxes • Benefits • Training • Professional development

12. Maintenance • Allocating adequate funds for maintenance is paramount. • Some recreation facilities consider maintenance one of the most important aspects of presenting their product. • Maintenance is a serious consideration to the comfort and efficiency of product delivery, and it contributes to facility and equipment longevity by preventing unnecessary wear and tear.

13. Maintenance Expense

14. Equipment • A primary responsibility of recreation administrators is budgeting funds for the purchase and care of all equipment. • Several items, objects, and equipment are in a recreation facility and can vary greatly in cost.

15. Utilities • Virtually no recreation facility can function without access to water and electricity. • Each utility represents an expense category that usually has to be paid on a monthly basis. • Recreation facility managers must maximize the use of a facility and scrutinize the utilities to minimize their cost where possible.

16. Contractual Services • Outside contractual services assist with facets of the facility that cannot be managed internally. • Typical contractual services include repairs to HVAC systems, janitorial services, garbage removal, landscaping, design assistance, consultant assistance, and snow removal.

17. Income • In order for a facility to be viable, income must be generated by the facility. • Income generation is critical to the success of recreation facility managers in delivering the core product to the user. • Many decisions regarding the delivery of a recreation product revolve around pricing the core product and core product extensions and the ability for those products to generate income.

18. Income Categories • Income can be viewed in two categories: gross income and net income. • Gross income is the total amount of money generated over a specified time, • Net income is the remaining funds after all expenses, including taxes, have been paid. • Net income is also known as profit, which is the primary source of revenue for private recreation entities.

19. Income Sources:Fees and Charges • Collecting income through fees and charges relates to the purpose of the recreation facility and the desire for users to access a product. • Fees and charges can come from these sources: • Ticket sales • User fees • Membership fees • Activity fees • Retail outlets

20. Income Sources: Rentals • Some recreation facilities may present the opportunity for income generation by renting space or equipment. • Renting is an option when there is interest in using space or equipment and customers are willing to pay a rental fee.

21. Income Sources: Donations • Many recreation agencies create an interest in and image of their facility that results in an opportunity for donations. • If a recreation agency appeals to a community, particularly if it provides services for young people, financial support through donations may be an option.

22. Income Sources: Investors • An individual or group of individuals with adequate financial resources, or investors, can provide funds for a recreation facility project in the hope of eventually receiving a dividend on their investment. • Investors have a percentage interest in a for-profit recreation facility.

23. Income Sources: Investments • Recreation administrators can invest excess cash in marketable securities to generate income. • Investments can be short term or long term in the form of interest on bonds and notes or dividends on shares of stock. • Investment strategies should be investigated thoroughly before implementation.

24. Income Sources: Sponsorships • Sponsorship usually results from cooperative interests between two agencies, both looking to gain something from the sponsorship. • Usually a sponsor offers financial resources to help with expenses in exchange for access to advertising space or promotional exposure. (continued)

25. Income Sources: Sponsorships (continued)

26. Income Sources: Tax Support • Most public recreation agencies depend on some type of income from local, state, or federal taxes. • The general funding philosophy of tax-supported facilities is that the facility serves the needs of the community. • Tax support is highly political and evolves from political leadership that can persuade government entities to fund a public need.

27. Fiscal Practices • In addition to understanding expenses and sources of income in delivering the product, recreation facility managers must organize and present systems for managing finances. • The most common fiscal practices for managing finances are budgeting, accounting, and cost analysis.

28. Fiscal Practices: Budgeting • Budgeting is a systematic effort to project all income and expenses for a given time. • Most recreation agencies budget in yearly cycles, submitting budget projections to the administration 3 to 6 months before a new fiscal year. • The fiscal year is a 12-month cycle, which does not necessarily correspond with a calendar year, during which a recreation agency determines and monitors its financial condition.

29. Fiscal Practices: Accounting • Part of the budget process requires ongoing record keeping of income and expenditures, or accounting. • Accounting practices are usually done by an accountant or fiscal officer and involve generating reports on a monthly, quarterly, and annual basis. • These reports reflect specific income and expense categories and are often compared with data from the previous year, other time frames within the year, or a predetermined budget that outlines management expectations.

30. Fiscal Practices: Cost Analysis • Cost analysis is the process of comparing and analyzing costs associated with delivering a recreation product in an effort to determine the true costs of delivering the product and applying ways to save money. • Ultimately the cost analysis results in recommendations to reduce operational costs and provide savings.