Under the new paradigm of declining economic conditions across a broad spectrum of consumer spending, internet cafe software face a singular challenge in addressing how they both maintain profitability while also remaining competitive. These factors are further complicated within the commercial gaming sector with increasing tax rates, and within the Indian gaming sector by self imposed contributions to tribal general funds, and/or per capita distributions, additionally to a growing trend in state imposed fees.
Determining what proportion to “render unto Caesar,” while reserving the requisite funds to take care of market share, grow penetration and improve profitability, may be a daunting task that has got to be planned and executed.
It is within this context and therefore the author’s perspective that has time and grade hands-on experience within the development and management of those sorts of investments, that this text relates ways during which to plan and prioritize a casino reinvestment strategy.
Although it might seem axiomatic to not cook the goose that lays the golden eggs, it’s amazing how little thought is oft times given to its on-going proper care and feeding. With the arrival of a replacement internet cafe software , developers/tribal councils, investors & financiers are rightfully anxious to reap the rewards and there’s a bent to not allocate a sufficient amount of the profits towards asset maintenance & enhancement. Thereby begging the question of just what proportion of the profits should be allocated to reinvestment, and towards what goals.
Inasmuch as each project has its own particular set of circumstances, there are not any hard and fast rules. For the foremost part, many of the main commercial internet cafe software o operators don’t distribute net profits as dividends to their stockholders, but rather reinvest them in improvements to their existing venues while also seeking new locations. a number of these programs also are funded through additional debt instruments and/or equity stock offerings. The lowered tax rates on corporate dividends will likely shift the stress of those financing methods, while still maintaining the core business prudence of on-going reinvestment.
As a group, and before the present economic conditions, the publicly held companies had a net income ratio (earnings before income taxes & depreciation) that averages 25% of income after deduction of the gross sales taxes and interest payments. on the average , almost two thirds of the remaining profits are utilized for reinvestment and asset replacement.
Casino operations in low gross gaming rate jurisdictions are more readily ready to reinvest in their properties, thereby further enhancing revenues which will eventually benefit the assets . New Jersey may be a exemplar , because it mandates certain reinvestment allocations, as a revenue stimulant. Other states, like Illinois and Indiana with higher effective rates, run the danger of reducing reinvestment which will eventually erode the power of the internet cafe software to grow market demand penetrations, especially as neighboring states become more competitive. Moreover, effective management can generate higher available profit for reinvestment, stemming from both efficient operations and favorable borrowing & equity offerings.
How a casino enterprise decides to allocate its internet cafe software profits may be a critical element in determining its long-term viability, and will be an integral aspect of the initial development strategy. While short term loan amortization/debt prepayment programs may initially seem desirable so on quickly begin from under the requirement , they will also sharply reduce the power to reinvest/expand on a timely basis. this is often also true for any profit distribution, whether to investors or within the case of Indian gaming projects, distributions to a tribe’s general fund for infrastructure/per capita payments.
Moreover, many lenders make the error of requiring excessive debt service reserves and place restrictions on reinvestment or further leverage which may seriously limit a given project’s ability to take care of its competitiveness and/or meet available opportunities.
Whereas we aren’t advocating that each one profits be plowed-back into the operation, we are encouraging the consideration of an allocation program that takes under consideration the “real” costs of maintaining the asset and maximizing its impact.
There are three essential areas of capital allocation that ought to be considered, as shown below and so as of priority.
1. Maintenance and Replacement
2. Cost Savings
3. Revenue Enhancement/Growth
The first two priorities are easy enough to understand , therein they need an immediate affect on maintaining market positioning and improving profitability, whereas, the third is somewhat problematical therein it’s more of an indirect affect that needs an understanding of the market dynamics and greater investment risk. All aspects that are herewith further discussed.
Maintenance & Replacement
Maintenance & Replacement provisions should be a daily function of the internet cafe software annual budget, which represents a hard and fast reserve supported the projected replacement costs of furniture, fixture, equipment, building, systems and landscaping. Too often however we see annual wish lists that bear no relationship to the particular wear & tear of those items. it’s therefore important to truly schedule the replacement cycle, allocating funds that don’t necessarily need to actually be incurred within the year of accrual. During a start-up period it’s going to not seem necessary to spend any money on replacement of brand name new assets, however by accruing amounts to be reserved for his or her eventual recycling will avoid having to scurry for the funds once they are most needed.
One area of special consideration is slot machines, whose replacement cycle has been shortening lately , as newer games & technologies are developing at a way higher rate, and because the competition dictates.
Investment in cost savings programs & systems are, by their very nature and if adequately researched a less risky use of profit allocation funding then almost the other investment. casino can often take the shape of latest energy saving systems, labor saving products, more efficient purchasing intermediation, and interest reductions.
These items have their caveats, one among which is to thoroughly analyze their touted savings against your own particular application, as often times the merchandise claims are exaggerated. Lease buy-outs and future debt prepayments can sometimes be advantageous, especially when the obligations were entered into during the event stage when equity funds may are limited. In these internet cafe software it’s important to seem at this strategy’s net effect on rock bottom line, as compared with alternative uses of the monies for revenue enhancing/growth investments.