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Monday
Jan302012

Weathering an Economic Downturn: Can Storage Cover Your Costs?

This article, by Dennis Kissman, was published in Marina Dock Age – May 1997

I’m not suggesting gloom and doom for marina owners just when were coming out of a downturn in the economy and the future is looking bright, but there is one thing that we do know for sure: The soft economy that we experienced for the past several years will occur again when we are least prepared.  However, there are ways we can minimize the impact on marinas.  Rather than being proactive, most marina owners and operators react to changes in the economy.  If you react, then the effects of a downturn in the economy will surely affect you.

As a rule, the marina industry is considered a reactive industry to the overall marine industry.  In a sense, that is true.  The marina owner must store and service the products the marine industry produces.  Beyond this correlation, marina owners are in control of their own future and face an altogether different set of problems when it comes to addressing changes in the general economy.

To reduce or prevent the financial hardships associated with a downturn in the economy, you must first recognize what your core business is and the reason a marina exists in the first place.

Marinas exist because boat owners need a place to store their boats.  In recent years, the industry has promoted the full-service marina concept to attract and retain customers.  It is important to grow and remain competitive when times are good.  But when times are bad, if the marinas core business (the storage of boats) cannot sustain the marina’s financial obligations, then it is in for some hard times.

The strength of the marine industry is selling new products, while the strength of the marina industry is caring for existing products.  When positioned correctly, marinas are less volatile in a downward shifting economy than the industry in general.

Now the question is: How do you take advantage of the fact that boats do not disappear?  Typically, boats do not leave a marina in hard economic times.  Boat owners usually cut back on maintaining boats and they definitely cut back on using boats.  Each of these factors can have a negative impact on marinas profitability when that marina relies heavily on these profit centers as a main source of income. 

When a marina derives the majority of its net operating profit from boat storage fees, it is impacted less than a marina that relies heavily on profit centers.  I suggest the following approach to see if your marina is ready to face a downturn in the economy. 

First, look at all the revenue generated from storing boats, including fees for utilities if they are not already included in the basic rate.  If you’re utility charges is a pass-through as boaters reduce their usage, your cost will go down proportionally.  But if there is some other arrangement where minimum usage or minimum hook-ups are required, these costs should be factored in as fixed costs.

If your marina is seasonal and part of the year customers store their boats on land at a reduce rate, be prepared to leave some of those boats out of the water during the boating season.  You may want to consider how you structure your storage agreements, so as not to lock yourself into a situation that is detrimental to the marina should a number of customers opt to keep boats on land during the boating season—a typical situation if a bank owns the boat. 

Now, address the fixed costs associated with the marina.  Closely look at your labor costs and determine the minimum amount of staffers that you will require, assuming that the demand for other services will be reduced and this amount becomes your fixed labor cost.  Don’t consider closing profit centers in a downturn, but do look at reducing staff and hours of operation.  Let’s face it: No one wants to lose good employees, but sometimes it is necessary if the marina is to survive.

When you look at the balance of the fixed costs, go beyond the costs associated with the day-to-day operations.  Look at all your liabilities to be sure that you are able to meet all of your commitments, such as payroll and income taxes, note and mortgage payments and customer deposit refunds.

If your storage fees can cover the fixed costs, then you should come through hard times.  On the other hand, if you anticipate shortfalls, then you should seriously consider restructuring your storage rates if you expect to be in business for the long term.

Dennis P. Kissman, president of Marina Management Services Inc. in Boca Raton, FL can be reached by phone at 561-338-5800 or via e-mail: dennis@marinamanagement.com.

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