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Tuesday
Jan262016

STAYING IN BUSINESS FOR THE LONG HAUL

This article, by Dennis Kissman, was published in Marina Dock Age –  December 2012

I have been writing articles in this publication for the trends issue for a number of years and have never had difficulty with looking forward and giving an opinion as to where the industry is headed except this year.  I happened to be giving a presentation to the Kentucky and Tennessee Marina Associations annual meeting on November 7 and meeting with several marina owners I felt there was a lot of uncertainty about the future of their marinas.  The presidential election was to eliminate the uncertainty we have all lived with these past couple of years but it appears based on the people in the industry that I have talked to, there is a general consensus that the uncertainty of the past is just continuing into the foreseeable future.

There is one fact that started many years ago and is continuing and that is the growing number of Americans that have been forced on the government dole with this lingering weak economy.  With that fact in mind, we in the marina industry must face reality that we are in a leisure industry and not in an industry that is necessary to sustain life.  As a result the areas where someone will cut back is in their discretionary spending and for some, that discretionary spending is boating.

Because of the length of time this recession has lingered on a lot of marina owners are facing a host of new challenges that was not an issue in earlier downturns in the economy.  The biggest problem that I see looming on the horizon is maturing of marina loans.  Most marinas are financed to some extent and of those most loans are structured with a five to seven year balloon payment that will be coming due shortly.  Lenders are faced with their own troubles and marinas are only a small portion of those troubles.  This could be a blessing in disguise.  Lenders are more apt to work with you to restructure your loan than to foreclose but they can only do that if you communicate with them.  One thing a lender hates is not communicating your problem.  Trust me you are not alone and they have heard far worse than what you are going to tell them.

Let’s assume you get your lending situation squared away and on track you still have work to do.  The days of raising rates because you are spending more money are over for a while.  You need to take a close look at your operating costs and where those could be reduced.  Don’t take a machete to your costs but rather a scalpel.  For example, you can cut down on labor expense by adjusting your hours of operation or maybe a closer eye on maintenance issues to get an extra couple of years use out of a piece of equipment because you tightened a couple of bolts or changed the oil more frequently.  It is these little things that will end up making a big difference without alienating your customer base.

Next you need to keep a close eye on your cash situation.  Keep a daily log of cash receipts and disbursements.  Know at all times how much money you have to operate with.  Take into account the seasonally factor for receiving cash.  A lot of seasonal marinas get the bulk of their cash before the boating season begins.  If that is your situation look at your historical cash flow and figure at least thirty percent less cash flow for this upcoming boating season and keep enough of this year’s receipts in reserve to cover any shortfalls.

Be diligent on collecting your receivables.  During these times look at the payment pattern of each of your customers.  If a customer always pays his dockage on the fifth of the month and all of a sudden it goes to the tenth of the month that should raise a red flag and you need to look into what has changed.  It could be as simple as someone going on vacation but then it could be that customer has some other financial issues that could be a problem going forward and impact your ability to meet your financial obligations.  One other thing I want to mention about cash management and that is if you sell fuel.  No matter how hard it is write the check to the fuel company do it the minute you get the delivery.  That does not mean you pay the fuel company before your agreed terms of payment but you want to get it out of your available cash.

Any of you that know me I am a strong advocate of adjusting dockage and storage rates annually.  Well, with these economic times and the unknowns ahead of us I still recommend adjusting rates annually.  More care has to be exercised than you might take in a better economy but look for small adjustments.  For example let’s say that you price slips by groups like boats from twenty to thirty feet in length one price and boats from thirty to forty feet in length pay a higher price.  You notice that two thirds of the boats in the twenty to thirty foot group are twenty eight feet in length.  Instead of raising your group rates why not change the upper group’s lower end from thirty feet to twenty eight feet thus increasing the revenue you receive without actually raising your published rates.

This is a time to pay close attention to your business like no time before. By making small adjustments in how you conduct your business like those mentioned above will make the difference in your success in the years to come.

 

 

Wednesday
Oct282015

What Marinas Can Do to Weather Today’s Economic Challenges 

This article, by Dennis Kissman, was published in Marina Dock Age –  May/June 2011

I was recently reading an article that caught my eye where a group of industry leaders were talking about an Association of Marina Industries survey of 124 marina professionals where they talk about the changing climate in the industry.  The one particular comment that caught my eye was the mention that marinas are going into receivership because they lost business.  A marina should be able to withstand a certain amount of lost business if the business was solvent before any downturn in the economy.  What I have seen so far in this economy are the marinas that are headed for or in foreclosure or bankruptcy seem to have one thing in common and that is they are in some stage of redevelopment with one exit strategy and that was becoming a dockominium or rackominium.

The article went on to state that the banks that have taken over the management of these marinas are reducing slip rates to boost occupancy and offset their costs.  The banks that are doing this did not make a marina loan based on an operating business but rather a real estate play.  Instead of these banks recognizing the mistake they made in the first place their actions now are only making the entire industry suffer more than necessary and in the end it will cost the bank more of a write-off.

The question now is what you should do as a marina owner that just happens to have one of these bank owned marinas in your neighborhood.  You cannot pick up your marina and move so you must deal with the poor decision made by others that do not understand this business.  The first thing is to understand the banks motivation.  They are in the business to make money on the money they loan.  Most of the time this works out for them but in the case of these marina loans it did not happen.  You as a marina operator in that market most likely know what that marina is worth and at the right price it would be a good deal to acquire.  If you have aspirations of expanding your business come up with a plan to acquire the marina.  This may sound ridiculous at first but even if you just go through this exercise it can help you improve your business because you will now have a better understanding of the competition.  First you must come up with a value of what you would be willing to pay.  You know the depth of the market because you already do business in it.  From that estimate the amount of income you could generate from it if the marina was in the condition equivalent to your current marina and without any expansion.  That will give you an estimated income number that you will now apply an interest rate that would be acceptable to you.  For example, let’s say that you believe you could generate $600,000 of operating income and for the risk you are taking you expect a 12% return on your investment.  That would mean that you would offer $5,000,000 but let’s say that in order to achieve that 600,000 of income you have to invest $500,000 in deferred maintenance in the property therefore your offer is $4,500,000.  Now that is probably a fraction of what the bank has invested in it but if you are serious about it, persistence and educating the bank on its true worth you may have a good chance of acquiring the property at your price which would not be the first time that has happened.

You are probably thinking to yourself that buying that marina is all well and good but I am trying to stay afloat when the bank is trying to put me out of business by lowering rates below what makes economic sense.  First, do not lose sight of the type of business you are in, the service business, bankers look at it as a rental business.  Second, you have a defined amount of space to generate income from, maximize it and third, boats physically do not disappear as rapidly as owners of those boats may change, meet those new owners expectations.  If you stay focused on these three thoughts you will weather this economic downturn.  Let’s look at each of these in more detail and what can be done to improve your business.

First, there is a big difference between running a service business and a rental business.  I think it is fair to say that most boaters are willing to pay something for service and that is what you have to sell over a bank managed property.  To look at how we can do this let’s look at other industries and see what is being done.  Take for example the airline industry; they continually modify their business model.  If you have flown recently you may have noticed the additional checked bag fees and on some airlines if you want a drink of water you have to buy it.  Personally I am not a fan of these policies and would rather pay a little more and have these services included but many people I talk to likes it because it gives them an option.  If you consider a policy such as this, make sure that: first, it is a service that is an actual cost savings if none of your customers want it and two, it is at a minimum a breakeven for the customers that want the service.  As is the case with the checked bag fees on airlines, bags mean extra pounds and on an airplane that equates to extra fuel consumption.  Reduced fuel consumption means reduced fuel cost.

Second, marinas have only so many slips to rent.  Here again let’s look outside the industry and see what is happening and how a marina can benefit from it.  The hotel industry has a very good business model in their room rate structure.  For example, two identical rooms, one overlooks the dumpster and costs $100 per night while that same room with an ocean view is $300 per night.  That is called value pricing the same should apply to your slips.  Look at your marina and decide which slips have more value to the boater than others and price each slip accordingly.  Again you give your customer a choice of where they would like to be in your marina and willing to pay for that location.  Here the key is to use your current published rate as the median with slips that are better than the median cost more and those that are below the median cost less.

Third, unfortunately many of the existing boats are going back to lenders.  Lenders are not boaters and their interest in that boat is to preserve the value of the collateral for their loan so they can get their money out of it through a sale, while the original boat owner who would be using his boat is buying fuel, getting repairs and buying sundries in your ship’s store.  If you have or can attract lender owned boats into your marina there is an opportunity to maintain or increase your revenues by creating a caretaker program for these boats.  A caretaker program includes items such as detailing services, exercising the mechanical systems and brokerage services.  Most likely some or all these services in some form you already provide at your marina.  To succeed with a successful caretaker program it must be sold to lenders as a value added program until the boat is sold.

This is the time to take control of what you can change and be aware of what you cannot.  Turn this negative situation into a positive that will make your operation stronger as the economy begins to turn around.

Tuesday
Oct202015

Drones in your Marina? You Decide!

This article, by Carl Wolf, was published in Marina Dock Age –  February 2015

What is a drone?  Technically, it is an unmanned aircraft or ship that can navigate autonomously, without human control or beyond line of sight.  In general, a drone can be any unmanned aircraft or ship that is guided remotely.

Recently, I came across a few aerial videos shot by airborne drones hovering above two different marinas.  The first aerial video showed a vessel that was up for sale.  The drone was remotely operated in a graceful hover, circling the vessel which was being put through the paces of operating in the confined waters of the marina.  As the vessel maneuvered through the water, the drone filmed its every movement. Wow, who wouldn’t want to buy that boat? 

In the second video, the drone hovered near the top of a sailboat mast, filming a member of the sailboat crew slowly climbing the mast on his way to adjust, repair or check-up on the equipment on top of the mast.  Have we found a new way to check the top of a sailboat mast without sending an individual up in a flimsy bosun’s chair?

Think of the other possibilities.  If the marina has been shut down due to a fuel spill, an aerial drone could be used to monitor events as they unfold.  If a significant storm has struck your marina, the docks have been damaged and boats are perilously floating around the marina, a floating drone could help you evaluate the situation without putting an employee in harm’s way. 

To that end, the Department of Homeland Security, the U.S. Coast Guard and the State of Hawaii Harbors Division have recently developed the “Unmanned Port Security Vessel” (UPSV).  The UPSV will allow a rapid response to assess threats to ports or harbors after a catastrophic natural or man-made disaster.

You might recall another definition of a drone – to make a sustained deep murmuring, humming, or buzzing sound.

What are your boaters going to think of a noisy airborne drone invading their privacy bubble aboard their boat?  Boaters use their boats as their sanctuary to get away from the everyday grind.  

On June 20th of 2014, the U.S. National Park Service banned the use of unmanned aircraft throughout the national park system.  One month later, an individual operated an unmanned aircraft over the marina at Lake Yellowstone on July 18 of 2014.  The drone crashed shortly after takeoff after appearing to lose power.  Recognizing the issue at hand, the U.S. National Park Service pro-actively addressed the drone issue.  Yet, someone defiantly flew an unmanned drone in their park system with the ban in place.  The marina industry is known to be a reactionary industry.  Marinas now have the opportunity to be proactive on how drones of the future will be operated in and above our marinas.

The existing rules pertaining to the operations and use of aerial drones are unclear and ambiguous at best.  The Federal Aviation Administration (FAA) is working on a set of rules governing the future operations of unmanned drones in our airspace.  For now, commercial use of aerial drones is extremely restricted by the FAA, although the aerial drone fleet within the U.S. continues to grow exponentially. 

How are you going to handle the first drone that comes to your marina?  Will it be a boat dealer wanting to video a boat that has just been listed in your marina?  Overall, the privacy of your boaters has to be your primary concern.   Whether you like it or not, the drones are coming.  The question is, will you be ready?  I believe marinas need to strive for a delicate balance between customer privacy and positive potential applications that drones can play as the drone industry grows and matures.  


Wednesday
Oct072015

WORKPLACE SAFETY AND HEALTH POLICY

This article, by Dennis Kissman, was published in Marina Dock Age - September/October 2014

Safety is an issue in which we all must address.  Not because it’s the law, but since it’s the right thing to do.  Employees are a marina's most valuable asset.  Their health and well-being should be the company’s number one priority. Safety has an influence on the financial strength and the operations of the marina. Think through the consequences if an employee suffers from a workplace injury:  the employee has suffered; the company may lose a valued employee for a period of time; who will replace the employee during their absence?; Workers’ Compensation and/or insurance premiums may increase; depending upon the injury, government regulators may visit the workplace; litigious lawsuits could be brought forth.  Protect your employees and your marina by setting forth a plan in which you can minimize safety issues from occurring.

Assessing Your Marina

To begin with, you need to have a thorough internal or external written assessment completed of your marina.  This assessment should look at and identify all safety and health hazards related to physical assets (utilities, docks, tools, cleaning supplies, etc.) and operational tasks (cleaning the restrooms, replacing a dock board, edging the lawn, etc.) within the marina, in which employees may use or be exposed to.  Additionally, this assessment can be used as a baseline to move forward eliminating hazards or to identify new issues as the marina experiences changes or processes. Use the assessment when creating, maintaining and auditing the marinas workplace safety and health program.  Items and tasks which need to be identified for further evaluation on safety and health issues can be addressed.

A Written Workplace Safety and Health Policy

It begins with management leadership and employee involvement.  A workplace policy is created and communicated to the employees. Detail job descriptions that include safety and health responsibilities. State the marinas current year’s goals and objectives. Evaluate safety and health responsibilities. Inform visiting contractors and customers as needed.

With adequate training, guidance and a nurtured company safety philosophy, an employee will view work related tasks with an eye towards safety.  For example; when cleaning a restroom, they can be made aware that accidently mixing two (2) different products together which can create a harmful vapor.  An employee’s shoes can prevent them from slipping on wet floors or protect them from splinters on the docks or understand that an electrical cord with a ground fault circuit interrupter (GFCI) can protect them from an electrical hazard when working around wet locations. Goggles can protect their eyes from flying debris while edging the lawn. Teach employee’s the hazards of working around water and the importance of wearing a life jacket if they accidently fall in the water.

Training is a high priority to ensure a safe and healthy workplace.  Setting aside time and having knowledgeable employee(s) to do effective training is important.  Following a set training program, a new employee is indoctrinated immediately into the program on their first day of work.  The program progresses as the employee’s duties change, the work environment evolves or the safety and health policy is updated.  Maintain records for the employees on the training they have received. These records should become part of the safety and/or the employees file.

Safety rules and regulations have to be enforced.  A proactive approach is always desired.  If needed, a disciplinary program needs to be in place and followed.  A report on an incident, near miss or accident must be created and investigated.  Safety procedures can be created or adjusted by using these reports as a learning tool.

 Resources

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) is there to help your marina.  Their website www.osha.gov is a helpful online resource that your marina can use. You can locate workplace health and safety requirements that apply to your marina. Your marina can request an OSHA on-site consultation that is free and provides confidential advice in all states across the country.  Refer to OSHA’s on-site consultation fact sheet for additional details (www.osha.gov/OshDoc/data_General_Facts/factsheet-consultations.pdf) on the program. Find out if your state has specific requirements that are OSHA approved and the standards that state mandates. Take advantage of training courses, educational programs and materials offered by OSHA for employers.

As a marina owner/operator, providing employees with a safe and healthy workplace is critical to the wellbeing of your employees and the success of your business.  Take the time now, educate management, invest as needed and create a positive philosophy for a safe employee and a safe marina environment.  Protect your employees, protect your marina, and set forth a plan in which you can help minimize potential safety issues from occurring at your marina.

Friday
Oct022015

THE IMPORTANCE OF ACCURATE FINANCIAL INFORMATION WHEN OPERATING YOUR MARINA

This article, by Dennis Kissman, was published in Marina Dock Age –  May/June 2015

Over the past 27 years I have had the opportunity to work with a number of marina owners and operators reviewing how their business is performing and advising on improving profitability.  Coming from a financial background, one of the first things I ask to review is the marina’s current and historical financial statements.

Good financial record keeping is the best way to identify what is being done right in a business as well as wrong if the business is ailing.  It can also tell you what steps are necessary to correct the deficiency and how to improve profitability.  The process is similar to that of your family doctor: you go to your doctor with a problem; the doctor diagnoses your problem then takes the necessary measures to correct your problem.  Financial information that is kept for your business should enable you to identify a problem exists, understand the complexity and magnitude of the problem and last come up with a solution.  If your financial record keeping and reporting is not doing this then most likely your business is not performing as well as it should.

When I review a client’s financial information there are three thoughts that I always keep in mind:

  1. Every business decision you make will have both a positive and negative effect on your overall business.
  2. Business decisions should be made based on current and comparable historical financial information.
  3. A financial statement is just a collection of numbers that must be interpreted correctly to make the right decision for your business.

Let’s expand on these three thoughts and see how they can impact a business:

  1. Every business decision you make will have both a positive and negative effect on your overall business. However, often times we make our decision based on the positive impact that decision will have on the business while ignoring the negative.  This is not uncommon because a lot of time the negative effect will not be directly related to the positive effect.  For example, you upgrade your fuel dispensing system and expect to increase sales volume by ten percent.  You can accomplish this without adding any labor cost.  The natural tendency is to look at the gross profit you will make on the additional fuel sales.  You look at your expected increase in gross profit and everything is positive to make the investment.  You calculate your return on the additional investment and it is positive.  Now what are some of the negative impacts? How about the added cost of electricity to pump that fuel or the additional marina operator’s liability and/or general liability insurance cost which is based on sales?  There is going to be more wear on your fuel dispensing equipment requiring more frequent repair cost.  The objective is that the change will have a greater positive effect that equates to a greater financial return to the business than the negative effect.
  2. Business decisions should be made based on current and comparable historical financial information.  Often times what I have found when reviewing a client’s financial information there is no consistency of where various income or expense amounts are being recorded.  Expenditures that should be recorded as cost of sales end up in operating expenses.  The problem is compounded when these expenditures flip back and forth.  When this happens it distorts your ability to compare like expenditures over time to get a trend as to what is really happening in the business.  When business decisions are made on outdated information or inconsistent reporting of information it often leads to making the wrong decision because circumstances continually change.
  3. A financial statement is just a collection of numbers that must be interpreted correctly to make the right decision for your business.  This may be the time for going back to Accounting 101.  When talking about financial statements for the business we often are referring to the income statement.  An income statement can paint any picture you want about a business and although it is a tool used to measure how profitable a business is; it should not be the controlling document.  A balance sheet is the controlling financial document of any business.  The balance sheet is divided into three sections.  First we have the assets.  These include things like cash, accounts receivable, inventory, and the property and equipment the company owns.  Next we have liabilities; as the name applies it is everything the business owes to others, such as accounts and notes payable and customer deposits for future services.  Now the third category is called equity.  Equity represents the value of the company and is the difference between the assets you have and the liabilities you owe.  Why the statement is called a balance sheet is because the total of all assets must equal the total of liabilities and equity.

Notice up until now we have not mentioned the income statement.  The reason is because one line in the equity section of the balance sheet will say current year’s retained earnings.  That number is the income that is reported on your income statement and the income statement has all the details of what makes up that number.

Now we have come full circle, this process is commonly referred as double entry bookkeeping.  It is a fantastic tool to help you manage your marina and stay out of financial trouble. Unfortunately many marina owners and operators do not know how or do not want to use this resource to help manage their business’ finances.  If you are in this latter category there is no need to read any further.  Any marina that has a ship’s store, fuel dock or parts department and does not use the double entry booking is heading for disaster.

I want to use the ship’s store as an example.  Let’s say that you receive a large spring order of merchandise to be sold in your ship’s store throughout the entire boating season.  When it arrives you record it as inventory, an asset on the balance sheet.  Throughout the season you sell this merchandise and record the sales as revenue but you do not transfer the sold merchandise from your inventory (an asset account on the balance sheet) to cost of sales (one component of the retained earnings account in the equity section of the balance sheet).  Another way to say it is if you show someone your income statement the profit will be higher by the amount of the cost of inventory that should have been recognized but was not.  On the other hand, when you take a physical inventory you will have less merchandise on your shelves than the cost that is recorded on your books for inventory.

The above explanation is how income and inventory are related and until you can see that relationship as well as all the other relationships with numbers when you review your financial statements you are just looking at numbers and not how your business is performing.

Do not under estimate the benefits of keeping accurate financial records for your business, interpreting what those records are telling you in the form of financial statements and then taking the proper action to guarantee your success.


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