consultants to the trade

Marina Dock Age, November 1996

How to Determine Dry Storage Return
by Dennis P. Kissman

Dry stack boat storage, which I call valet storage, is increasing in popularity throughout the world. Over the years, I have reviewed a number of existing valet boat storage operations and done financial models on many new projects. Although I recognize no two marina operations are exactly alike, I have been able to see patterns for revenue, operating costs and return on investment evolve.

These patterns seem to be comparable whether the facility is newly constructed or a refurbished or expanded existing facility. The key is the number of racks. A dry stack operation has a certain threshold of fixed operating cost regardless of the number of boats it can accommodate. Once this threshold is achieved, the incremental increase in operating cost is minimal until the next threshold. I have found that each threshold is about 260 boats stored. Note that I refer to boats stored, not total capacity of the facility. There is fixed cost associated with each rack, but that cost is minimal compared to the variable cost associated with actually storing a boat in an active valet boat storage facility.

Construction costs per rack range from $2,600 to $3,000 for a four-rack-high totally enclosed rack-supported structure containing 260 racks that can accommodate boats up to 40 feet with a 12-foot beam. The type and weight of the individual boats will most likely be the limiting factor than a boats overall dimensions. This also assumes the structure has the traditional metal sheeting on the exterior surfaces and is fully sprinkled, with a concrete center section and prepared earth under the boat storage area.

In comparing operating costs for a dry stack operation, it is more important to recognize the major components than to detail the cost associated with each. First, you have the cost associated with the individual rack. Second, you have the cost associated with handling the boat stored in the rack. Third, there is the cost associated with administering the entire marina. I wont factor in administrative costs, though, because they can fluctuate substantially.

The cost to maintain a rack and the structure it is housed in can be directly related to the replacement value of the rack. Under normal circumstances, a 3.2 percent replacement reserve is sufficient to cover normal annual preventive maintenance and replacement. Keep in mind, this figure is used in conjunction with the total number of racks in a 260-rack dry storage facility. The cost to maintain any one rack could vary, but in total the cost should fall within the projected guidelines over time. I recommend that this same guideline be used in the early years of a new facility when repairs are minimal, with the unexpended amount being held in reserve to avoid future shortfalls of maintenance funds.

In addition to the preventive maintenance and reserve cost, assume the structure will be insured against catastrophic loss due to fire or wind (excluding flood). This annual cost will fluctuate with location but a figure of 0.7 percent to 1.3 percent of rack value is a reasonable assumption. To assure you are using the most current insurance industry figures, rates should be checked annually with your local insurance agent.  

The largest group of direct costs include direct labor and benefits, equipment operating costs, and marina operators liability insurance. If each of these components of direct cost is broken down and analyzed, you can come up with a method of determining a cost relationship on per-rack basis.

Using the first threshold of 260 racks as the benchmark, the operating cost per rack for direct labor and benefits should range from $0.068 to $0.103 per hour of operation.

Equipment operating costs, unlike labor costs that can be determined by the number of racks, are in direct relationship to the direct occupancy. Assuming the operation uses a negative forklift to launch boats, the daily equipment operating cost should approximate $0.26 to $0.30 per boat stored.

The premium for liability insurance is based on total revenues and payroll. Current rates are between 0.9 percent and 1.2 percent of the totals. Note that insurance rates are a function of the insurance industrys overall loss experience ratio in a geographic area. These rates can change frequently, so always check with your local insurance representative.

Keep in mind there are two additional factors that must be taken into account. First, there are the general and administrative costs of the marina. Second, there is a base cost to each rank regardless of the occupancy. When occupancy is less than maximum, this base cost is still incurred and must be absorbed.

 

Marina Dock Age, September/October 1996

Protecting Your Marinas Most Valuable Assets: Your Employees
by Dennis P. Kissman

I believe by now every marina owner who has followed the advice of previous columns I have written has come to the realization that he is in a capital-intensive service business. Of course, it is people that provide services, and, specifically in the context of a service business, it is the employees. Whether your marina employs two people or 52 people, their importance to the success of your business should not be underestimated. The fact that you are the owner does not make you a god. Every employee wants to respect and look to his boss for direction. You have an obligation to fulfill that role.

The important question for marina operators is, “How do I motivate and retain my employees?” I know many of you are saying, “Thats a no-brainer, just raise their pay and give them a turkey at Christmas.” Or the other comment I often hear is, “If they don’t like it here, let them find another job.” If you think this way, then chances are your profitability is lower than you would like.

First of all, as an owner you must realize that no employee has the motivation you have. Employees work for two things: money and recognition, usually in that order. To get a person to work for you, you must provide a competitive wage. As the length of employment increases, recognition becomes the primary reason a person stays on a job. Recognition comes in the form of both acknowledging a job well-done and financial rewards.

Even though both competitive wages and recognition through financial rewards relate to a form of compensation, they are very distinct and should not be confused. I have reviewed hundreds of marina proforma where salaries and wages rise 3 percent to 10 percent per year even though the operation doesn’t change. In the real world these increases just do not take place. A job can only pay within a very defined range. When you pay someone consistently below the range they become discouraged and leave. At the other end of the scale, if you pay someone beyond the going rate, then you are paying more than the job skills require.

The key is to implement a compensation program that is competitive in the marketplace, can be fairly administered and is flexible enough to change as the business changes. First, being competitive in the marketplace does not necessarily mean just keeping up with other marinas in the area. For example, if you have dry stack boat storage operation and you employ forklift operators and your marina is in an area where there are a number of warehouse operations that also employ forklift operators, that is the competition. You must look beyond your own industry.

Next, can your program be fairly administered regardless of the number of employees? It is very easy to design a plan that short-changes your star performers while overpaying your slackers. This often sends a wrong or mixed message to employees. The worst situation of all is when no compensation plan exists. This is an absolute guarantee that your employee turnover will be excessive and/or your labor cost high.

I am not in a position to design a compensation plan that will work for every marina, but here are five tips to consider when you begin to develop your marinas compensation plan:  

1. Set annual goals for the marina. Be specific, not vague or ambiguous. For example, you want to attract an average of four new customers per month while only losing eight current customers for the entire year. Or, you want to reduce damage to customers boats due to forklift operations by 20 percent from last year. Communicate these goals and their progress to employees. Set monthly and quarterly objectives to be met.
2. You need to tell each employee what is expected from him in order to reach those goals. Don’t give him some vague mumbo-jumbo about making the marina the best in the market. You must be specific: “Mr. Dockhand, it is your responsibility to see that docks A and B are kept free of all bird droppings.” Be prepared to monitor the progress of each employees goals.
3. Recognize a job well-done and reward the effort immediately. Personally, I like to use newsletters and bonuses as the principal means of employee recognition instead of just issuing year-end salary increases. The reason for this is that the recognition occurred and is still fresh on everyone’s mind. It does no good to tell the forklift operator in June that he has reduced his boat damages 40 percent year-to-date and then not give him any financial reward or open recognition until December. By that time he will have already left, or instead of damages being down by 40 percent there will be no change from last year. If you had recognized this person as the employee of the month in June and given him a $250 bonus, it would have meant a lot more than a fifty cents an hour increase at years end. For the same amount of money that fifty cents an hour increase will cost, you could reward that employee four times during the year. I assure you that you will have a much happier and dedicated employee if you adopt the bonus approach. Just put yourself in the employees shoes. Wouldn’t you rather be handed a $250 check and recognized for a job well-done than told that your weekly take home pay will go up maybe $15?
4. I believe one of the most coveted, yet inexpensive, employee incentives is to let an employee nominate any colleague to receive a $25 gift certificate to a local restaurant or other retail establishment. The nominating employee will often hand out the award to the co-worker. Peers are a lot tougher on their co-workers than you would be when it comes to dishing out praise. For the recipient its the recognition by a fellow worker, not the monetary value, that matters most.
5. Stop relying on annual raises for employees. In my opinion, they are a thing of the past and they give you the least return for your invested dollar. An annual raise is looked at more as an entitlement than as a reward for a job well-done. I believe there should be no monetary limit as to how much a person can make, but I also believe people have to earn their compensation. In order to earn it you must be able to measure the expected results. For example: a goal last year for our general manager was to increase fuel sales by 20 percent. Say that amounted to an additional $10,000 in gross profit, and he was able to achieve the goal. What would be wrong with giving him 10 percent of that increased profit as a bonus for recognition of a job well-done. If you gave the same amount ($1,000) as a raise it would lose its real purpose and become just another entitlement. By giving it as a bonus to the employee, it is not guaranteed next year. The employee will have new goals to meet and rewards to be earned, but most of all the employee has no upper limit on what he can earn.

These are just a few of the components to consider when developing a compensation plan for your marina. If you think developing a compensation plan is too disciplined an approach to running your marina, think again. Through my travels I have visited a number of marinas both in the United States and abroad. It becomes pretty easy to spot a marina that has a compensation plan in place that is properly administered.  

Don’t be too alarmed if you do not have a plan in place today, because you are still with the majority of marina owners. However, I strongly recommend that if you are going to remain competitive in this capital-intensive service industry by the turn of the century, you had better reassess your thinking about a compensation plan for your marina today. 

 

Marina Dock Age, July/August 1996

How to Pick a Real Estate Agent
by Dennis P. Kissman

In recent months I have worked with a number of clients who are in the process of buying or selling a marina. The one thing they all have in common is that they want to know the value of the real estate and the value of the business. Everyone seems to recognize that the income generated from the business must support the investment in both the real estate and the business.

Many of the deals I have looked at are marginal. By that I mean if anything changes negatively in the assumptions used in the projections, it could mean financial trouble.  

This leads me to something that bothers me personally in analyzing many of the deals: Where do the real estate commission or other finders fees attached to these deals fit into the buy/sell equation? In many instances it is this increased cost that makes a deal marginal. Buyers must face the fact that they are paying these commissions and fees one way or the other. For every $100,000 in real estate commissions, the buyer will pay about $10,000 a year. In other words, you have to make an additional $10,000 in bottom line income just to cover the cost of the money borrowed to pay the real estate commission or fees. At first glance that may not sound like much, but if you expect to make a 20 percent net bottom line, you would need an extra $50,000 in revenue per year. And that has to come from somewhere beginning the moment a new owner takes over.

I am not in a position to say whether that money was well spent or not. That decision must be left up to the parties involved. Also, it is not my intention to challenge the real estate profession. I am a licensed real estate agent and firmly believe there is a real need for the profession. Unfortunately, there are some very unscrupulous real estate agents who seem to target marinas and give the entire profession a bad name. Real estate agents are licensed professionals. Although each state has its own licensing requirements, the requirements seem to be very similar from state to state. This does not mean all real estate agents are the same. Do not expect to run your fingers through the yellow pages and come up with a winner every time. Selecting the real estate agent to represent you and your marinas is a lot like getting married. If you don’t develop a trust and respect for each others abilities, do not expect results. So choose that person carefully and let him do his job. Never lose sight of the fact that a real estate agent has one motivation and this is to receive a commission. The profession requires a real estate agent to act either for the seller, buyer, or for both, but the bottom line is "no sale, no commission."

I was recently brought into a situation where a marina was sold through a real estate agent less than a year ago. The deal required the seller to rap the existing financing and remain liable on the original note. The buyer was inexperienced in marina operations, with limited financial resources. It is my understanding that the buyers precarious financial condition was made known to the seller just prior to closing. When the seller learned of the buyers financial condition, he wanted to back out of the deal. But because the buyer had the funds to close the deal, the real estate broker had his attorney threaten to sue for his commissions and damages if the deal did not close. Today the buyer has walked away from the deal, losing his equity. The marina is in a state of disrepair and the seller has it back.

The seller had since moved on and bought another marina and now faces a financial dilemma that threatens the future of both marinas. In my opinion, this situation was brought about by an unscrupulous real estate broker. You can’t tell me that the real estate broker had the interest of either the buyer or seller in mind. His interest never went beyond his bank account.

There are a few tips that I believe could save a seller a lot of money down the road. One thing you never want to do is let a real estate agent who walks into your marina and says, “I have someone interested in buying your marina and would like to show your property,” actually show the property. If you agree to let the real estate person introduce you to this so called "potential buyer" you have just entered into an oral contract. Believe me, you have just registered your marina with that broker, even if he never brings the "potential buyer" to the marina.

In addition, your marina would join his list of marinas for sale and be distributed to anyone who wants the list, including other brokers. According to real estate law in most states, you may have agreed to a number of things that you are not aware of, including paying a real estate commission. Even though you did not sign a formal agreement with the agent, you are a client. Behind the scenes, the agent and maybe several others that you have had similar experiences with all think you are a client.

By inadvertently involving several real estate agents acting on your behalf, you could trigger a commission split with other agents. I have seen in some deals real estate commissions divided six ways. Now you may think that its not your problem, but it is. Remember a real estate agent is in the business for one thing—to receive a commission. Say your agent has two properties each involving a $100,000 commission. On one property he splits the commission with the buyers broker 50/50, but on your property his 50 percent is further split with another broker, leaving him 25 percent of the original commission. On which property do you think that agent will focus his attention?

Here is what to do if you are a serious seller:

First, shop for the right broker to represent your property—one who specializes in marinas. Most likely it is not the real estate agent down the block. Do not be fooled by marina brokers with long lists of marinas for sale. If you compared the list from any two brokers you’d probably find the same marinas on both lists. Ask for a list of other marinas this agent has represented and closed deals for, then make sure you check them out. Do not be shy about asking very pointed questions on what these agents did to earn their commissions. Ask the real estate agent why he would consider listing your marina and demand specific answers to your questions. You know more about your marina than anyone else. See what the agents know about marinas.  

There are many agents out there who do nothing but get listings on any type of property they can just to receive a commission if it sells. That may be fine in residential real estate, but the marina market is so small that you need a very knowledgeable person to market your property.

Second, be prepared to sign an exclusive listing agreement that outlines just how your marina will be packaged and marketed. Realize that this cost is not cheap and is going to be your responsibility up front. Negotiate to have it come out of the commission earned if the property sells.

Next, ask for an advertising budget with a time line. This agent now works for you and you should have his or her undivided attention when it comes to promoting your marina. By signing an exclusive listing agreement you are committing to paying a commission, so don’t be afraid to demand results.

Third, be prepared to take any constructive criticism the agent offers regarding your property and its value. Remember, the reason you selected this real estate agent in the first place is his knowledge of the industry and the market.

If you’re not willing to make this type of commitment, stay away from real estate agents. And if you’re approached, state that you are only interested in dealing with principals.

Buyers face the same problem as the sellers, only with more risk. The old saying "let the buyer beware" really applies to real estate. Unless you specifically engage a real estate agent as a "buyers broker" in writing and establish a fee structure, that agent really works for the seller. If you don’t have a buyer’s broker agreement in place, your agent is required to try to obtain the highest price for the seller—even if your agent approached the seller on your behalf.

Finally, I just want to say that a good real estate agent under an exclusive contract with you is worth his weight in gold and earns every penny of his commission. On the other hand, stay far away from the bad ones because they can cost you a lot more in the end than just a real estate commission.

 

Marina Dock Age, May/June 1996

Decide if Dry Stack Storage Makes Economic Sense
by Dennis P. Kissman

I have heard presentations and read articles on the attributes of adding dry stacks, or valet boat storage as I refer to it, at marinas as an alternative to increasing berths. The theory behind this is that it is both less expensive and more environmentally sensitive to add racks and move smaller boats into them. Doing that makes slip room available for larger boats and sailboats that can not fit into racks, thus reducing the need to increase the water surface area of the marina. I am not about to challenge that thinking but I do think it is appropriate to look at the economic impact of that decision in order to make an intelligent choice as to whether it is right for your marina.

Ask yourself three questions: First, is your market and future, primarily composed of power boats? Second, if you add a dry stack storage facility, can you make it large enough to be economically feasible and still have enough upland space available to accommodate the increased parking requirements and boat staging areas, both in water and on land? Third, can you reconfigure your berths that currently contain these smaller boats in order to accommodate the larger boats you anticipate attracting? If you answer yes to these three questions, then adding the dry stack facility is probably a good move.

What I want to do is suggest how you can approach this decision by a review of the economics involved. In order to do this I am going to take the liberty of making some assumptions that are not necessarily applicable to your marina. However, if you use this approach and apply your own variables to the assumptions, it should give you some solid answers. Assume you will construct a 240-rack dry stack building. (Many experts in the marina industry including myself feel this is the optimum size to get maximum return on your investment.) By building this structure, you will be able to attract 80 existing berth holders to the new facility. Also assume the average boat length and berth converted from the berths to rack storage will be 25 feet. Finally, assume stabilization and economic return at 90 percent occupancy.

Let’s go back to the original three questions and construct the method for making a decision. The first question is easy to address: If your market consists of sailboats and that is the future growth potential of your marina, then dry stack boat storage is not the answer. Sailboats do not lend themselves to this type of storage facility.  

The second question raises several important issues. Using the original assumption that you will construct a 240-rack facility where boats are stacked four-high in lengths of up to 35 feet, you would need approximately one acre of space. You must also consider the additional parking requirements. This requirement generally depends on local zoning issues and varies considerably, although one space for every two racks is a good rule of thumb when making your decision. In the example, this means you need to provide an additional 120 parking spaces. Estimating 125 parking spaces per acre of expansion, you will need a total of about two acres for the project.  

Now that you have determined that you have enough space to expand, look at the costs involved. Rack manufacturers usually quote a cost from $2,500 to $3,000 per boat space depending upon the type of building chosen and local building codes. I will assume a fully enclosed building and use the high end of the scale to be conservative. Therefore, your building and racks will cost $720,000 to construct. In order to get a building permit, you must also put in the additional parking spaces. If each paved and striped parking space costs $2,000, the parking lot will add an additional cost of $240,000.

You still are not finished because most likely your marina will not have the proper forklift. A new forklift that can lift up to 20,000 pounds and have the capability of a negative lift costs about $170,000. Lighter capacity forklifts can get the price down to about $125,000. If you hope to cater to boats up to 35 feet, the larger capacity forklift would be the right choice. It would be reasonable to add another $150 per rack to cover costs not detailed such as marketing costs to launch the new service, as well as beefing up the bulkhead at the launch area to allow the combined weights of the boat and forklift to come to the edge of the water. This will add another $36,000 to the project.

In this scenario you have a cost of $4,858 per rack, or a total cost of $1,166,000. This is a 61.9 percent increase over the price of the rack alone.

Now look at the income you can expect based on the previous assumptions. Typically, rack rates are less than berth rates. (I cannot understand this reasoning because in reality the marina is providing much more service and peace of mind for the boater than if the boat is kept in a berth.) For example, use a composite rate of $6 per foot per month. With the average boat length at 25 feet, the monthly fee would be $150, or $1,800 annually. At 90 percent occupancy, expect a total annual revenue of $388,800 and a net operating income of 42 percent, or $163,296. This represents a 14 percent return on the original investment.

Now that you understand what to expect from dry rack storage, look at your berths. This was one of the main reasons you added the dry stack facility. Your berths were 25 feet to accommodate 25-foot boats. Now you’re trying to attract 45-foot boats. These new boat customers cannot utilize the existing berths, not just because they’re too short, but they are also likely to be too narrow. The decision is made to reconfigure the berth lengths from 25 feet to 50 feet and increase width by 5 feet. If the footprint of a 25-foot berth is approximately 225 square feet and the 50-foot berth is 700 square feet, then the total berth area for the 80 berths you originally had was 18,000 square feet. Assuming a single fairway at 1 1/2 the berth length with half of the berths on each side, the total footprint of the fairway is 13,500 square feet. Add another 20 percent for docks and wasted space and you have a total basin area for these 80 berths of about 37,800 square feet.

It becomes apparent that the entire 80 berths will have to be replaced. Its obvious that the fairways and berth widths are not wide enough, most likely the utilities on the smaller berths is not sufficient to accommodate the larger boats. Now you have to figure out how many berths will fit into the existing basin area. Without actually drawing the basin out its difficult to say exactly how many of the new berths will fit into the existing basin. If you want to do a quick estimate use 30 percent whenever the berth size doubles and most likely you will be within a few berths of the actual count. If you use this in your calculations, you would be able to get 24 of the new berths in the same area. By doing a quick check its apparent that each new berth will have a footprint of 700 square feet for a total of 16,800 square feet as compared to 18,000 square feet with the prior arrangement. Again assuming a single fairway with boats on both sides, the size of the fairway would be 12,600 square feet as compared to 13,500 square feet.

Using our 90 percent occupancy figure in both cases we would have charged for 1,800 linear feet of berthing when we had the 80 berths compared to 1,080 linear feet with the new configuration. If your berth rate is 20 percent higher than the rack rate, then instead of the $6 per foot per month the rate would be $7.20 per foot per month. It is also fair to assume that the larger berths would command an additional 10 percent over the smaller berth rate. This 10 percent would raise the rate to $7.92 per foot per month. The total annual revenue with the 80 berths would be $155,520, while under the new arrangement with 24 larger berths it is $102,643—a decrease of $52,877 or 34 percent. Now that you have looked at your revenue from the new configuration we should expect a net operating income from these berths of approximately $82,114.  

You also have to look at the cost of these new berths. Several studies indicate that berth cost is double that of rack cost on a per foot basis. Since you used $3,000 for your rack cost for a 35-foot boat, that would bring your per foot cost in at $86. Using this as our base, the cost of a 50-foot berth would be $8,600, or a total cost for the 24 berths of $206,400. Again, it is fair to assume that you should add an additional 10 percent because you have to remove the old berths before you can build the new ones. This would raise your capital investment for these berths to $227,000. We will realize a savings because with the reduced berths we will gain 28 parking spaces at a total savings of $56,000.

Recap estimates to determine your return on investment at 90 percent occupancy:

Total cost of dry stack facility: $1,166,000

Total cost of the new berths $227,000

Less savings on reduced parking spaces $56,000

Total investment $1,337,000

Annual net operating income:

From dry stack storage $163,296

From berths $82,114

Total annual net operating income $245,410

Return on investment 18.4 percent

Although your particular circumstances may vary from what was presented here; the elements should be similar. Although I did not address the potential for increased revenue streams, it is a consideration. Boaters with boats in dry stack storage tend to have work done by the marina rather than doing it themselves. Also every time the boat is handled by the operator he has a chance to visually inspect it and make suggestions if he sees a potential problem ,which often leads to additional work for the marina. Larger boats that are in the new berths will usually spend more money on fuel and other services you offer.

The merits of making a change as worked through here must be on a case by case decision and should be weighed very carefully because the investment usually ends up much larger than first anticipated.

 

Marina Dock Age, March/April 1996

Make the Right Business Decisions for Your Marina
by Dennis P. Kissman

Marina owners and operators often ask the question: “How do I know if I am making the right operating decisions for my marina?”

To begin with, anyone who owns or operates a marina and expects to be successful must quickly realize that this is a capital-intensive service industry. One of my favorite sayings is, “ If you do not take care of your customer, someone else will.” Your marina may be the most conveniently located, the most competitively priced and have the most upscale amenities, yet it may still fail to achieve its income potential or occupancy levels of other marinas in your market.

Chances are, the reason for this deficiency is the level and type of services you offer compared to your competitions services. Most owners in this situation come to the conclusion that if they increase the services offered, they will be able to attract more customers. Most of the time that conclusion is right, but if it is wrong, the mistake can cause a financial disaster—with a long recovery period.

Don’t lose sight of the purpose of your business: to make a profit. The best way to achieve that is to know your customers needs and expectations.

Determining how to meet those expectations with the greatest financial benefit can be tough. To reach the right decision, focus on the greatest financial benefit and the least amount of risk.

Ask yourself if the decision will result in direct or indirect benefits. When will these benefits be realized? It is impossible to evaluate the results of your decision if you don’t know when to expect this return and in what form. If you can’t evaluate the results, most likely you will become reluctant to implement your ideas in the future.

The following is a six-step, straightforward, systematic approach to making a sound business decision. When applied objectively, it achieves the desired results in the least amount of time with the minimum amount of risk.

1. Clearly state the change you plan to make, the reasons you want to make the change and what benefits you expect in return. For example, you believe it is a good idea to extend business hours from 10 hour to 12 hours per day to capture fuel and ships store sales from early departing fishing boats. You believe this change will increase fuel sales by one-third and ships store sales by 10 percent.
2. Write down your options for achieving your objectives. Keeping the sample above, your options include staggering the working hours of existing employees to cover the extra hours and avoid paying overtime to work the additional hours; paying existing staff overtime to work the additional hours; or implementing one or more combinations of the above.
3. Make the required assumptions for each option both in costs and benefits. Be sure that the assumptions you make can be measured against data collected in the normal course of business. This could include hours worked and wages paid; gallons of fuel pumped during the extra hours; and gallons of fuel pumped during original hours to make sure you’re selling more fuel and your customers didn’t change the hours they buy fuel.
4. Calculate the financial gain you expect from each option. Rank each option starting with number one being the option with the greatest financial reward and the lowest ranking being the option with the least financial reward.
5. Carefully weigh each option as to the amount of risk involved. I like to call this process an "educated guess," as there is no direct calculation that will give you an answer. Again, rank each option.
6. Now you've come to the most important question in the decision making process: Does this change meet your customers needs and expectations? Do not lose sight of the reason you began this process in the first place: to fulfill customers needs and expectations. Now grade each option as to how it addresses this issue. Use a grading system of one through five-one means the change fully satisfies or exceeds the customers needs and expectations; a grade of five means the change ignores customers altogether. Do this for each option.

You now have a series of three numbers for each option. Add up the numbers. The option with the lowest total will be your best choice. Don’t be surprised if a couple of options have the same total. This only means that these options should achieve similar results. The more you use the process, the faster you will become and the more confidence you will have in your decision-making skills.

Remember, this system only works if you are completely objective with your choices. Stay focused and do not confuse what you want and expect in a marina with what your customers want and expect. Do not lose sight of the purpose of your business: to make a profit.

 

Marina Dock Age, January/February 1996

Owner/operators can compete with corporate managers
by Dennis P. Kissman

The marina industry is in transition. It began as a cottage industry in the late 1930s. Today marinas are also owned by corporations and municipalities.

The corporate management style places demands on marinas and changes the entire face of the industry. Owner/operator marinas have a personality of their own, while corporate ownership usually attempts to use the “cookie cutter” approach with the focus on profitability. Many times this is at the cost of other aspects of the business. Do not get the wrong idea — every marina owner should strive for maximum profitability. However, do not lose focus that you are in the service business and customers differ from marina to marina.

The question now is how does the owner/operator compete in this environment and coexist with the corporate ownership of marinas? The question is not that difficult to answer as long as the owner/operator has a mind open to change and views himself in a slightly different light. Your role as owner/operator is no different from the hired manager at the corporate-owned marina, with two exceptions. As owner/operator you have the ability to change operating policy at will. However, you probably do not have the financial resources at your disposal that the hired manager does. The key is how you use these differences to improve your operation.

Let us first address how to handle policy decisions. Note that policies are nothing more than the way you conduct your business. In the corporate scenario, policy is often a compromise, designed to be implemented at several locations, administered uniformly at all locations and measured for its effectiveness. The key phrases here are administered uniformly and measured for its effectiveness: here is where the hired manager has the advantage over the owner/operator. The hired manager can be an effective administrator because he can always place the blame for the policy decisions on someone else — the good guy-bad guy approach — while in reality he may have had input on establishing the original policy. The hired manager remains the good guy in the customer’s eyes. As an owner/operator, you should wear the same hat. Never make policy decision on the spot. Always take the time to think things through and ask yourself these questions: Can I administer this policy uniformly throughout the marina? Is it the best change for the marina? What is its financial impact?

I have seen many owner/operator situations where policies are not written. Based on the particular situation, these policies are often interpreted differently by the staff members responsible for administering them. Documentation is something that no entrepreneur likes to do, but if you intend to remain competitive, you must take the time to formally document how you conduct your business. Do not forget to include the procedure for changing an existing policy.

Keep in mind that every policy decision you make has a financial impact, whether it is raising berth rates, changing operating hours or requiring dogs to be on a leash. Be prepared to measure the impact that each decision has on your profitability. Without any form of measurement, it is difficult to determine if the right decision was made and what adjustments have to be taken to maximize the results.

To put this into perspective and practice, consider this case. Earlier this year a client who owns a 180-berth marina in Florida decided to raise berth rates to cover increases in operating costs. We looked at the market and found that four other marinas that serve the same boating market were all priced competitively with this marina and enjoyed similarly high levels of occupancy. The decision was made to increase rates an average of 15 percent and change the rate structure to be more in line with the boater demand for services. Each change was carefully measured to see its effect. The impact to the bottom line was a net increase in berth income of approxi-mately $70,000 a year.

What was the cost of this change? One customer paying $230 per month left the marina. His berth was immediately rented to a similar size boat of better quality. The owner paid the new pub-lished rate of $264 per month.

For valued long-term berth holders, the marina now provides free pump outs. This change reduced the marina’s revenue by about $180 per month. However, the free pump outs have attracted larger transient boats and increased the average boat length for seasonal berth holders by about two feet. Since the marina is in a highly seasonal transient market and charges by the foot, revenue increased. The impact of larger boats in the marina also increased the profitability of other profit centers. Ironically, within four months of the published changes, the other four marinas in the market area had similar rate increases. It appears that they also have not suffered any loss in occupancy. Regarding available funds — whether for working capital or capital improvements — you may not be able to match dollar for dollar with corporate-owned marinas. However, that does not mean that you cannot compete. My experience has been that if you operate your marina in an efficient and professional manner with a well-documented and consistent performance record, financial institutions will look favorably at your request for funds. Good record keeping is essential, as is documenting important developments that have affected your business. Look at these developments not as excuses but rather as reasons to change your business. Note what steps you have taken to capitalize on some and minimize the impact of others.

Unlike corporate ownership with many financial sources available, you most likely will get only one chance to present your marina. It is for this reason that you must take the extra time to understand your past performance as well as your plans for the future and present them on paper in a logical manner so that someone not familiar with a marina's operation will be able to understand your plan.

Another thing that I have found to be helpful for the owner/operator when dealing with lenders and investors is to have a reasonable exit strategy. If everything goes wrong, how will your debt obligations be met? Having a reasonable plan in place many times will avoid the personal guarantee that financial institutions always seek.