Simple Pathways to Profitability

Transcription

1 Simple Pathways to Profitability October 28, 2015 Minnesota Resort & Campground Association Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC registered investment advisor.

2 Our Discussion Today Review a resort business model from macro level Understanding of break even point and profitability beyond that point Understanding contribution margin and capacity utilization (occupancy) to improve profitability Linking profitability with cash flow (Net Income Cash Flow) 2

3 Why CLA Today? Helping the business owners we serve achieve their dreams. Improving Profitability Reducing Risk Building Business Value Planning for Succession 3

4 Contribution Margin Gross Revenue Direct Costs (Variable) Contribution Margin * * Contribution Margin represents the sales revenue that is not consume by variable costs and contributes to the cover fixed costs and produce profitability. Contribution margin is a key building block to a break even analysis. 4

5 Variable Costs vs. Fixed Costs Generally most costs are relatively fixed (especially in the near term) Variable costs are those costs directly related to a sale (i.e., fuel cost when selling fuel) Unless actively managed, labor and wages expenses tend to be more fixed than variable 5

6 Illustration of a Typical Resort 6

7 The cost structure of most resorts is highly fixed It takes a combination of pricing and occupancy management to improve profitability 7

8 Example with Numbers Change Rental Income 875, ,000 75,000 Retail Income 193, ,000 28,000 Total Income 1,068, , , % Cost of Products Sold 110,000 10% 94,050 10% 15,950 Contribution Margin 958,000 90% 870,950 90% 87,050 Rental Unit Costs 141,900 13% 140,500 15% 1,400 Resort Overhead Costs 229,000 21% 226,700 23% 2,300 Payroll Expenses 258,200 24% 253,000 26% 5,200 General Operating Expenses 195,950 18% 194,000 20% 1,950 Total Other Expenses 825,050 77% 814,200 84% 10,850 Net Operating Income 132,950 12% 56,750 6% 76,200 Interest Expense 45,000 4% 48,000 5% -3,000 Net Income 87,950 8% 8,750 1% 79,200 8

9 Simple Break Even Calculation Determine contribution margin percent Divide total non direct costs by contribution margin percentage Change All Non-Direct Costs 870, ,200 7,850 Contribution Margin 90% 90% 0.00% Estimated Break-even 966, ,000 8,722 9

10 Linking Income to Cash Flow Net Income 87,950 8,750 Depreciation 45,000 44,100 Amortization 5,000 5,000 Operating Cash Flow 137,950 57,850 Equipment Purchases (35,000) (35,000) Principal Debt Payment (60,000) (60,000) Excess (Deficit) Cash Flow 42,950 (37,150) Cash Flow Needed 95,000 95,000 Depreciation (45,000) (44,100) Amortization (5,000) (5,000) Income Needed to Cash Flow 45,000 45,900 10

11 Concluding Messages Know your break even point! Profitability can only be changed by two things: Increased Revenue Reduced Costs Increasing Revenue two primary drivers: Increase Pricing Increase Occupancy (potentially at lower rates) Reduce Costs Often limited benefit due to highly fixed cost structure 11

12 Our Firm Top ten firm Emphasis on privately held businesses Audit Tax Industry advisory Specialized advisory Outsourcing Wealth advisory Transition Planning We have over 3,600 professionals, operating from more than 90 offices across the country. We help owners and leaders: Improve profitability Reduce risk Build business value Create a legacy 12

13 Helping the business owners we serve achieve their dreams. How can we help you achieve yours? 13

14 Jim Haakonson, CPA Principal Al Laitala, EA Director CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/claconnect 14