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Thread: Budget and Elections

  1. #1
    Join Date
    Nov 2006
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    Corralitos, Ca.
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    14,675

    Default Budget and Elections

    I've been reviewing the Treasurer's Report in the latest magazine and see things are still operating in the red. Some of the major items are:
    Model sales $24,447 off projection.
    Manufacturing costs $10,275 off projection.
    Publishing costs $5,378 off projection.
    Payroll costs $6,019 off projection.
    Show costs $7,546 off projection.

    One that bothers me is a projected expense for Website cost of $11,500 and only $2,317 spent. If this includes BB expense, why is this money not being spent on badly needed improvements?

    Seems to me having the same results from the same officers is putting the club in the red (-$40,224 for this period).

    What are the club officials learning and what are the projected changes to get us out of negative operation?

    Do appreciate the financial reporting that members are receiving.

  2. #2
    Join Date
    Dec 2006
    Location
    Liberty, NC.
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    3,259

    Default

    The money is being spent on upgrading the BB this will be done in phases and billed in phases.
    The club is working very hard to be diversified in ways to generate income- not just models
    Erik Christenbury
    Cat List: More than some, less than others
    https://chriscomachinery.com/caterpillar-machinery/

  3. #3
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    Default

    Looks to me like some serious cost containment needs to be implemented.
    How are the loses being covered?

  4. #4
    Join Date
    Nov 2006
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    Bakersfield, California
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    2,548

    Default Information.

    Old Magnet, your read of the numbers is pretty much on point. I'll respond to your specific points in order, then provide some additional explanation afterward.

    Model sales actual of $33,298 versus budget of $57,775 for an unfavorable variance of $24,477.

    Model sales have been very difficult for the past couple of years. Until 2008, our models sold very well, but with the economic downturn near the end of that year, sales of our models, which are very discretionary spending, effectively fell off the cliff.

    To give some perspective, our average annual gross sales from models for 2005 through 2008 was $490,000 per year. During those years there was a gradual increase from $428,000 in 2005 through $620,000 in 2008. In 2009 our gross model sales revenue was $330,000, 2010 was $247,000, 2011 was $293,000 and 2012 was $237,000.

    Through 2011, we produced at least one new model each year. Introduction of a new model brings in lots of new revenue because people who already own other models want to buy the new model. It also stimulates sales of our existing models, to some extent. The problem is that introduction of a new model also soaks up a lot of cash. Each new tractor model we initiate costs us about $250,000 in cash. That cash usually goes out in four installments over the nearly a year it takes between initiation of the project and release of the models for sale.

    In 2011 we identified a problem which began accumulating after the downturn in 2008. Through 2008, we were spending between $100,000 and $200,000 per year on inventory, creating a new model every year. Each year, we were selling almost as many models as we were making, replenishing our cash reserves by repaying ourselves for the models made and contributing to our spending on other programs with the profit earned on the model sales.

    After 2008, we continued spending that money on new models. Because of cost inflation in China, that spending was now between $175,000 and $250,000 per year on each new model. Our sales had fallen, however, and a lot of that cash spending was getting trapped in inventory. This meant each year our cash reserves declined, our ability to spend on other operations was impaired, and our bottom lines were getting worse. Looking at this picture in 2011, we decided that we needed to head in a different direction.

    One reaction to the above economic picture was the change in staff and operating structure that the Board made in 2011 and continued in 2012. General and administrative costs had grown as our success grew in the models program through 2008. These costs don't include cost of goods sold or magazine or website production, but are just the basic costs of operating the Club, running the office, collecting and accounting for dues and some of our other smaller programs. In 2008 our general and administrative costs were $176,000, in 2009 they were $166,000, and in 2010 they were $215,000.

    Acknowledgement of the change in cash made available from the models program was one of the main drivers for the change in office staff and other economizations we did in 2011 and after. Our 2011 general and administrative expense was $182,000, 2012 was $147,000 and the 2013 budget is $118,000. We are a little ahead of the budget for payroll as of May, but part of the reason for this has to do with how I put the budget together.

    We pay salaries bi-weekly, meaning that twice per year, there are three paychecks per month. For us, that happened in January and again in July. I should have allowed for this within the budget, but instead, I budgeted for salaries evenly throughout the year. This means that when you compare the budget to the actual year to date through May, even if we are on track for the year, you will see a timing caused unfavorable variance year to date through May. If the rest of the year is on track, our payroll expense should balance out and we should just about meet the budget by the end of the year.

    Stepping back to the budget of all general and administrative costs for the year to date 2013, we have expensed $60,000 against a budget of $47,000 for an unfavorable year to date variance of $14,000. This unfavorable is driven by several categories including Office Supplies at $3,700, Payroll at $6,000, repairs and maintenance at $1,500 and show costs at $7.600. I touched on the payroll timing variance above. The others, which total $12,800, are actually pretty much all associated with our unbudgeted Members' Event, which was held in April at the Caterpillar Visitors' Center in Peoria.

    We decided in December of last year to hold this event after the budget was already approved. As such, it was not part of the normal budget. We planned the event to try to charge our members only for reimbursement of our costs, not to create a profit for the Club. This event generated the unbudgeted $17,000 in Show Revenues above as well as causing the $12,800 unfavorable variance in the general and administrative section, which is where most of the costs of putting the event on fell. We actually met our goal of not making, but not losing money on the event, because the event costs buried some under-budget areas in the general and administrative section. Total event revenue was the $17,000 while total actual event costs were $16,800, meaning we made just a small actual profit on the event.

  5. #5
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    Default The rest of the information.

    Getting back to the main point, what you see with the May financials is a battle ship in the midpoint of a course correction. Our Board has done a good job of recognizing and reacting to the change in model sales by dramatically reducing our costs while minimizing any impact to members services. I think we have done about all we can on the cost reduction standpoint. Any further cuts will have a noticeable impact to services to our members.

    We are now focusing on what we can do to stimulate sales. Remember that I said through 2011 we were spending between $175,000 and $250,000 per year on new models, but starting in 2009 our sales cut in half, then continued to decline a bit before leveling off in about 2010. This meant that our cash reserves were declining and our inventory balances were increasing. The work we did on controlling spending helped with the cash reserves decline, but couldn't make all the difference.

    Much as we hated to lose the stimulation of introducing a new tractor model each year, in 2011 we determined that we couldn't afford to continue that strategy. We felt we needed something to introduce and identified the grader and terracer models as a less expensive alternative which would also complement the models we already had out in the marketplace. We did that project, which released in 2012 and did help stimulate sales last year.

    We're in a situation now, though, where we can't responsibly consider production of a new tractor model. Our cash reserves are only $182,000, not enough to do a new tractor model, even with presale money coming in. On top of that, we have $544,000 in inventory on the shelf which isn't liquidating to cash very quickly. We have spent 2013 exploring alternatives to move our inventory, turning it from hard goods back into cash and providing the funds to facilitate a new tractor model. We have set some things into motion which you will just start seeing in the next month or two.

    You all may have noticed the Caterpillar-John Deere joint dealer article in the latest magazine. That article kicks off a relationship with the Two-Cylinder Club. A similar article is being published in their magazine, which goes out to their 20,000 or so members this month, along with a half page ad for our graders and terracers. We hope to see some cross-pollination between our two clubs and some interest in each other's models. We are continuing our regular monthly ads in Toy Trucker and Toy Farmer magazine. We also will have full pages ads in Two-Cylinder's November issue, in Antique Power Magazine and in Farm Collector Magazine. These ads will appear, possibly with complementary articles about the joint dealer program, in the November issues to make the biggest impact for holiday sales.

    We generally realize one third or more of our annual sales of models in the two months from mid-October through mid-December, so we hope that returning to some old markets and appearing in new ones will help stimulate sales. We have also implemented a 10% off program through which each ad provides a unique discount code providing the purchaser with 10% off their order. These codes will enable us to track ad performance so that in the future we can focus our spending on the ads which make money for us and avoid those which don't generate sales.

    We have some other alternatives for moving inventory which we are exploring, including some retail outlets who may be able to purchase blocks of our inventory at a dealer type discount and move them to markets that we don't typically reach. I don't have any firm information on those alternatives, because we are just exploring the possibilities right now, but I think it looks promising and I wouldn't be surprised if we could convert some significant blocks of the $544,000 in inventory back into cash, facilitating introduction of a new model sooner.

    As you can see from the discussion above, the model program is critical to our finances and we're trying to revitalize and rejuvenate that as best we can. We would appreciate any thoughts and comments by members or non-members alike. We have many club members who sit on the Models, Merchandise and Marketing Committee and would always welcome more people with different perspectives to help keep these things moving. If you're interested in joining our monthly conference calls, which generally only take an hour or so, call me at (661) 343-3691 or email me at pbloom (at) ymail dot com.

    That was a long answer to the models question, but I think it is important to tell you what I know about the whole picture and what we are doing.

    On the manufacturing costs, that line item is primarily driven by model sales. There are some other items in that line, like the purchase of apparel and literature for resale, but the largest item in there by far is the cost of goods sold for models. These statements are provided on an accrual basis, meaning that we don't expense the cost of goods sold for a model until we sell it. You'll notice that the percentage budget variance for manufacturing costs is about the same as the percentage variance for model sales. If we can get models selling faster, manufacturing costs will go up a corresponding amount.

    Publishing and production costs include all costs of publishing and printing the magazine, any Chapter banners, creative work on making advertisements for us to publish and some of the creative work for content on the bulletin board. This category also contains costs for printing some special materials for the Members' Event which was conducted in April. Most of the $5,400 unfavorable variance here was caused by costs for that members' event and accounts for the difference between the $17,000 favorable in Show Revenue and the $12,800 unfavorable in general and administrative costs. B4D2 manages the magazine and website operations for us and has done a very good job of negotiating contracts with our publishing and printing vendors, keeping those costs under control and in a slight decline for the past three years or more.

    I touched on the payroll and show cost variances above. I can provide more information and explanation if you'd like.

    You mentioned the bulletin board upgrade. It is budgeted at and still expected to cost $11,500. Remember that you are looking at the May financials here, so the $2,317 is actually just the monthly maintenance on the bulletin board since the upgrade had not started as of the end of May, or at least we had not accrued any payments against the upgrade. We started the upgrade work in June and did accrue and pay the first half of the $11,500 cost. That project is still ongoing. Some parts have already been implemented, but quite a lot is being tested and still yet to be rolled out. We actually expect now that the project won't be finished until December of this year or January of next year.

    This is a very complex upgrade involving more than just the bulletin board. It includes upgrades to the bulletin board, the website itself, our online store and our membership database. These have all been free-standing databases and installations. They still will have some separate elements to them, but we are integrating them more seamlessly to eliminate costly time and potential for error in maintaining the separate installations. We are also moving a generation or two in underlying software, which carries its own complications, but will facilitate better, more stable service for a long time to come. Progress is happening, even though you don't see it yet on this financial picture.

    To sum up, I'll return to the battleship metaphor. We feel that the financial storm is waning, but we aren't out of the woods yet. We are trying to identify and steer the best course, but welcome thoughts and opportunities to discuss it further. We also could use all the help we can get. Any member or even non-club members are welcome to join any of our Committees, which actually conduct the bulk of the Club's business. All Committees meet by conference call, sometimes monthly, sometimes on an as needed basis. We rarely meet more often than once a month. I really enjoy all the people I work with and continue to be amazed at the quality of the people who step forward to help. Call or email any of us, our information is in the front of the magazine, you know most of us on here and how to contact us. You can call me any time at (661) 343-3691 or email at pbloom (at) ymail dot com.

    Thanks for asking the questions, Pete. I hope my answers are helpful and would welcome additional followup.

    Pete.

  6. #6
    Join Date
    Nov 2006
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    Corralitos, Ca.
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    Default

    Thanks for the response and very well done. Far more meaningful than just looking at the raw numbers.

    The one question I didn't see an answer to other than eating up reserves is how are the loses being covered.

    Still seems like there is a fair untapped market for materials, parts and literature that would actually assist operation, maintenance and restoration of equipment. I see a few items coming to lite but would like to see more happening in this area or at least some dialogue on what is being persued.

  7. #7
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    Default Additional information.

    Thanks, Old Magnet.

    You are correct that what has been happening is that our losses have been eating up our cash reserves. We did a lot of work to reduce our spending to better correspond with our revenues over the past couple of years. We feel now that we've done as much as we can in that area without harming our service levels. Our focus now is finding ways to increase those revenues.

    I talked a lot about the models programs because that is what is going now and has the quickest turnaround. We are working on other products, too. Erik and Kent Bates are nearly finished with a grader serial number book, which will complement our track type tractor serial number book. This is a great source of information and I know that the grader book will be just a popular. It will cover all of the Russell line and through the Caterpillar line up through the 12 series and beyond.

    We have also begun to enter the reproduction parts market. The ad in the latest magazine lists a number of small items which were not previously available from other sources. George Logue donated the patterns for a number of manifolds, including the Sixty, Thirty, Ten and patterns for some other items, too. We're working on putting together a program to put those patterns to use producing parts for those who need them.

    We have also explored reproduction manuals. Caterpillar had a deal to produce these inhouse, then outsourced them to Midland Press, then brought them back inhouse again. The quality from either source was outstanding and the cost was reasonable, given the quality received. Caterpillar has talked to us a couple of times about the possibility of us taking over the reproduction manual business. This is something that will be costly to undertake. There are a lot of resources and expertise required to do this right and we are not sure if we are capable of this with our current structure and financial wherewithal. We continue to investigate it and I think there may be some merit to this project, although it will take some more time to get off the ground.

    Here again, some of this stuff could be moved faster if we had more volunteer help, especially by people already experts in some of these areas. We also could always use new thoughts and ideas for things we should be producing. Everyone has good ideas, but they all don't occur to all of us at the same time.

    Thanks for your interest, and for your ongoing contributions to our community here.

    Pete.

  8. #8
    Join Date
    Nov 2006
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    Corralitos, Ca.
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    Default

    Thanks again,

    Is there a possibility of joint venture with Cat on the literature sourcing?
    Maybe handle distribution rather than the entire operation?

  9. #9
    Join Date
    May 2007
    Location
    Northern Victoria, Australia
    Posts
    2,604

    Default A timely conversation

    Thanks to Old Magnet for politely raising this subject.

    (1) My suggestion is raise the annual Subs for ACMOC Membership by $10 in $5 installments over the next 2 years, if we have 4,000 or 5,000 members then that will raise a extra $40,000 or $50,000 per year within 2 years without too much drama, I realize a lot of folks are hurting still with the post GFC economy, and I know of guys here in Australia who cancelled their ACMOC membership because of financial hardship, but I think most members could afford a extra $5 a year over the next 2 years, that's what, about the cost of 2 cups of Joe at the local Donut Shop.

    (2) They say there is no such thing as a free lunch and I agree, this Forum is a brilliant tool for bringing new folks into the ACMOC family and initial access should be free and unrestricted, however, I feel strongly that we financial ACMOC Members are going broke as a Club providing this free Forum and other services, and unlimited access to all areas should be reviewed to investigate opportunities of Fee Per Service, such as down loading scans from the Part Number Books and selling them. Forget reprinting the old Part Number books, that's yesterdays technology, and there are sufficient numbers of old books sold regularly on Ebay or here on the Forum to satisfy the handful of idiots like me actually saving old Cats with my hard earned coin.

    Initially scan the Parts Books of the most common old Cats being restored around the world, like the 10, 15, 22, D2, D4, D6, D7, D8, and make those Part Book scans available through both the ACMOC Forum Store as a digital download or hard copy printed sheet, AND, available through the ACMOC Magazine for those thousands of ACMOC Members around the world who do not use a computer, AND, make those scans available to Caterpillar customers around the world via the Cat. Inc. Dealer network either digitally or as a printable hard copy, at a fair price. The Dealers do not have all the old Part Number books any more, and if they do it sounds like many of the younger Spare Parts folks do not know how best to use them. We need to move into the 21st century, while respecting the needs of older fools like me from the 20th century.

    (3) I suggest that we ask Cat. Inc. to help sell those toy models through their international Dealer network, by having a small counter display at the main dealer shops around each country, that way you tap into a potential market of millions of Cat owners, and the operators, and the repair folks, and even the families of those folks, who go to the dealer regularly like my long suffering wife "Anna the Saint", to pick up the parts. Those people standing at the counter with their check book open, or credit card in their hand buying $3,561.89 worth of parts, or even just $19 worth, are going to spot that Cat toy on the counter in November or early December and think "Gee, I'm sure little Bobby, or Mary Sue would really like one of them under the Christmas Tree, hmm I might buy one right now", or at other times through the year for a birthday, or anniversary present. If a person is in a Cat Dealer Store to buy Caterpillar parts they are the most likely candidate to want to buy a Cat toy for themselves, or someone else, in my humble opinion, and we need access to those folks to save this ACMOC Club.

    Right now you are only accessing what, only 4,000 or 5,000 Financial ACMOC members trying to sell these toys, and a few thousand more at your Trade Shows where it sounds like a few toys grew legs and walked out the door unpaid, and yes, by partnering with the John Deere folks we might sell a few more, but from my experience here in Oz, you are either a green tractor person or yellow tractor person, not both, and if you are actually restoring the real thing, most folks either do not have the spare cash, or interest, in acquiring a whole fleet of toys. Money is tight right now around the world, but if ACMOC discounts those toys to Wholesalers I think you will shoot yourself in the foot by destroying the higher market value paid previously by good folks. It sure would tick me off seeing a Cat. model being sold for $99 in 2013 after I paid $199, or $239 for it in 2011, and I've heard that already from several Cat. folks here in Oz who have bought those toys.

    (4) I have previously offered to donate $50 towards the cost of the computer upgrade and other good folks stepped up to the plate at that time and agreed to throw a note in the hat too, my offer still stands, and I think if you can promise ACMOC members that the money raised will only be spent on that upgrade you might be surprised to find maybe a few thousand dollars being donated. I suggest Bruce sets up a specific thread asking for donations to this important upgrade, because I'm not the only one who has asked that we move more quickly to save the Technical Sheets generously uploaded to the Forum by Experts like "Old Magnet" and "Edb", I'm not getting any younger, and nor are they, and we need this computer upgrade yesterday, but funded by today's and tomorrows dollars.

    You folks already know I'm dumber than the dirt I farm, but this is what I think.
    Regards
    Mike
    Last edited by Mike Meyer; 09-08-2013 at 03:07 PM.

  10. #10
    Join Date
    Nov 2006
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    Corralitos, Ca.
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    Default

    Hi Mike,
    There are a lot of good ideas in what you say but the trick is not going broke while administering them.

    I'm thinking maybe some kind of coupon sale system may work where purchased coupons entitle the requestor to answers and documentation for questions asked to their satisfaction.

    I believe a sort of version of this already exists on the net called Ask.com.
    Can't say that I've used it or that I've been impressed with questions/answers involving tractors but it might work as an alternative to just giving the information away for nothing. Also could be some differentiation for member and nonmembers.

    As far as models go with all the real toys in the hobby I just can't see adding dust collectors as a long term solution. There are no toy models in my house and I don't want any either. I think direct related items to supporting and restoring equipment are much more relavent to the hobby.

    Just grinding some gears here, not trying to get on the soap box.

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