Endorsed in late March by the Economic Study Committee of NSAA is a proposal to develop a uniform system of accounts for the ski industry. So that NSAA members might be better informed about the issue involved, we asked Bill Marvin to spell out and explain the advantages of the ski area industry adopting such a system.
It’s been one of those good months. You found out that the price of the lift you’ve been planning to install this summer has increased $50 thousand from the quote you received in September. Your food service concessionaire went bankrupt owing you two months back rent. The only bright spot is that perhaps the condominium owners association won’t ask you too many tough questions about how you can justify your latest request for an increase in maintenance fees.
The snow, thank heaven, held pretty well and your skier-days were up from last year. But your accountant has just told you that he thinks your gross operating profit is down three per cent from last year despite a $1.00 increase in your ticket prices.
As if this wasn’t enough, the Board of Directors wants you to give them a summary of your operating results this season, and you know that they estimate profitability by counting cars in the parking lot. These problems, needless to say, have you concerned. Concerned, because you would never admit to being scared to death!
The example is a little extreme—or is it? I’m sure that every operator has had similar difficulties this year. I also expect that it has been difficult to determine how much of the problem is unique to a particular operation and how much is common to the industry.
One important tool that could help you analyze your operations and recognize potential problem areas is a uniform system of accounts for the ski industry. A proposal was submitted to the Executive Committee of NSAA by the CPA firm of Laventhol & Horwath to assist in the development of such a system. It has since been accepted.
Let me take a question and answer approach to explain what a uniform system can do to improve an area’s profitability and management effectiveness.
A uniform system of accounts? What’s that?
It is merely a standard way for ski areas to summarize their financial transactions by putting the same costs in the same place with the same name. It doesn’t mean using the same kind of printed forms, the same way of handling different accounts or even the same way of keeping payroll or storeroom records. It means only a uniformity in classifying income and expenses which would probably require some rearrangement of the general ledger, purchase journal or check register. The necessary changes can be made in a day or two.
Doesn’t everybody keep their books the same way now?
There is really no limit to the inventive genius of bookkeepers in devising different ways of classifying the same expense items. Give the same batch of bills to ten different people with instructions to classify the expense items into logical groupings and you will get ten different results. I still remember one restaurant statement we received for analysis and comment where one of the more important expense items was noted as “Advertising and Garbage Removal.”
If you’re getting better every year you have nothing much to complain about, do you?
In many cases that might be true, but there are a few hazards that are easy to miss. Let’s say that you have just discovered the game of golf, and after a bit of practice by yourself, you have used 200 strokes to play 18 holes. The next week your score is down to 190 and the next week, 180. You’re really getting good, right? Compared to your past performance, yes; but when you find out what scores other people are making—when you build up a statistical knowledge of golf scores—you may suddenly realize that you’ve got a lot more practicing to do. That is precisely the effect of developing statistics and relating them to your business. Operating statistics are important to management in all industries. When you get down to it, operating statistics are just a summary of what others are doing. If you don’t have that kind of knowledge the only comparisons you can make are with your own operations, and that can often be misleading.
Different types of areas have different types of needs. How can a system that works for Condo City, Colo. ever apply to the needs of Big Ditch, Kansas?
A uniform system should be adaptable to the needs of both large and small areas. In addition to a detailed chart of accounts, a uniform system of accounts for the ski industry could also include examples of financial statements, basic control systems for lift ticket sales, ski school, rental shop and the essential requirements of a management information system. All of this, plus a system of record keeping and suggested forms for the small area, basic systems and report forms for food and beverage cost control and basic hotel control procedures.
If the majority of the industry adopted a standard way of keeping their books, how would that benefit the operator?
A uniform system would represent the best thinking of ski area operators on the subject, screened by professionals, making it possible for operators to keep their records in a clear, concise manner.
Secondly, a uniform system would make it easier to train bookkeepers, since all the essential elements and relationships would be clearly defined in a printed manual. The response to the economic study would be better, giving a clearer picture than ever of the state of the industry. Use of a uniform system would enable operators to accurately compare their results with the statistics in the economic study, pinpoint weak spots in their operating procedures and eliminate inefficiencies.
And, it would enhance the professional stature of the ski industry and the individual area in the eyes of lenders, many of whom still regard the industry as a hobby and a bad risk. Accurate industry standards would enable lenders to make a more accurate evaluation of requests for financing, while at the same time giving the operators a solid basis for determining the financial potential of proposed new facilities.
A uniform system of accounts for the ski industry: it may not solve all your problems, but it can help you identify where they are.
Ed. Note: The author is with the CPA firm of Laventhol & Horwath, who are associate members of NSAA and have participated in the development of Uniform Systems of Accounts for clubs, hotels, motels and restaurants.
