1. Managing Finances 10 chapter

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.