by Jim Moore
How can I develop a more sharpened financial focus on my campus which has multiple living arrangements?
Great question. The Senior living business is becoming increasingly complex. The continuum of products and services is growing. There is a pressing need to optimize the financial viability of each individual product or level of care on your campus.
Consolidated financials provide the big picture/summary approach, but to determine the true financial sensitivity of your organization you must develop individual cost/profit centers within your continuum. Simply combining three or four businesses within a community into one overall consolidated income statement of revenues and expenses is not the best practice for the future. Just using consolidated financials can frequently mask unacceptable subpar performance of one cost center, while penalizing the overall operation. Each individual major product and service offered should meet reasonable industry financial benchmarks of revenues, expenses including an overhead allocation, net operating income, profit margins and cash flow.
Each cost/profit center should have initial stand-alone income statements before being merged into your consolidated financial statements. It’s true that you must provide a seamless consolidated continuum of products and services for your residents. However, each key element of this continuum must first be segmented as a stand-alone cost and profit centers and then (and only then) combined to track the overall campus results on a consolidated basis.
The stand-alone cost/profit center is a concept whose time has arrived. It is already being implemented by progressive sponsors and owner/operators. The benefits include sharpened pricing, focused cost controls and potential overhead cost reduction. Finally, the concept is fast becoming a key element of a state-of-the-art business practice.
Do you have a question or need help with the complexities of multiple cost centers? Contact MDS today to see how we can help.