Fine Tuning Your Capital Investment Plan

Posted on January 25, 2018 by MDS

In the previous blog titled LONG-RANGE CAPITAL INVESTMENT PLANNING we talked about how to incorporate capital budgeting and investment into your long-range financial planning. It is imperative to address those items that will be or may already be deteriorating. This will both save you money and help you stay competitive.

Some of the items we are talking about would be outdated equipment (HVAC, kitchen, office) as well as cosmetic items (carpets, décor, window treatments). By spending the money to update equipment, you could be saving your community money in the long run by faster, more efficient operations. And the importance of keeping common spaces and individual living units updated is necessary to stay competitive especially if there are new facilities opening in your area.

Below is an outline of the top five capital investment warning signs and some of the items found within each category:

Cosmetic Wear and Tear
- Public Spaces
- Floors/Carpeting
- Individual Living Units
  - Counter Tops
  - Lighting
  - Electrical Fixtures
  - Appliances

Physical Plant Deterioration
- HVAC
- Elevators
- Commercial Kitchen
- Roof
- Exterior Elevations
Functional Obsolescence
- Office Equipment
- Security System
- Video, Internet access
Increased Operations Cost
- Optimize Energy Efficiency
- Repairs and Current Maintenance
- Deferred Maintenance
Capital Improvements by Competitors
- Enhanced Public Spaces
- First Impression Improvements
  - Exterior
  - Interior
- Landscaping
- Front Entrance (Exterior)
- Building Elevations
- Window Treatments

Obviously, this is not an exhaustive list. There are many other issues to potentially address. But this is a great place to start when evaluating where your community could use some attention. With each item you list, it needs to be accounted for in your capital budget plan. Assign it a priority code and then plug it into the Revolving 5-Year Capital Budgeting Plan as shown below.

Once you have identified your capital investment needs and assigned them a priority, you can determine dollar amounts needed to keep your community efficient and up-to-date with both existing competitors and new state of the art competitors that may be introduced into your market area.

SUMMARY OF A TYPICAL REVOLVING 5-YEAR CAPITAL BUDGETING PLAN

¹Create similar spreadsheets of other priority categories summarized in our previous blog “Long Range Capital Investment Planning” dated January 4, 2018.

Staying on top of your current and future needs by proper planning will help keep you on top of prospective residents’ list of potential new homes.

The above was taken from Jim Moore’s book Independent Living and CCRCs; Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owner/Operators. Jim Moore is president of Moore Diversified Services, Inc., a national senior housing and healthcare consulting firm based in Fort Worth, TX that has been serving clients for 46 years. He has authored five books about senior living and healthcare including Assisted Living Strategies for Changing Markets and Independent Living and CCRCs. Jim Moore can be reached at (817) 731-4266 or jimmoore@m-d-s.com.

Addressing Cost Increases with Residents

Posted on June 15, 2017 by MDS

“You’ve Got Questions . . . We’ve Got Answers”

We struggle with a very real and emotional issue; the annual increase in monthly service fee increase for senior living residents. How do we address this issue with our residents?

You are dealing with a very significant financial challenge. First, the facts; 1) seniors will only get a Social Security increase of 0.3% in 2017, 2) short-term CDs and money market funds have returns of less than 0.3%, 3) inflation as reported by the September, 2016 Consumer Price Index (CPI) for all items is currently 1.5%. These indices may reflect inflation of individual commodities, but the CPI does not appropriately track the real world of a senior’s typical costs incurred in senior living communities. The two areas of highest cost for sponsors and owner/operators are dietary, representing approximately 20% of total operating expenses and direct care, typically representing over 40% of operating expenses. In 2016, the annual increase in employee wages represented approximately 2.5% to 3.0%. Similar increases are planned for 2017.

Current industry benchmarks reflect annual monthly service fee increases of approximately 2.5% to 3.5% for 2017. The industry typically attempts to realize a 0.5% to 1.0% positive spread between a community’s annual increase in overall operating expenses and offset moderate increases in monthly service fees.

In attempting to make these numbers work, consider at least the following; 1) occupancy enhancement, 2) responsible expense reduction and 3) optimized unit pricing. Enhanced financial performance represents both a pressing need and a huge opportunity frequently overlooked by many owner/operators. In in 2017 and beyond, it will become a significant imperative.

An operations analysis by MDS will identify opportunities for improvement. A detailed overview includes Optimizing Income statements; expense management while increasing Net Operating Income, Operating Margin, Cash Flow. Contact MDS today for an appointment.

Save

Organic Growth – Getting More Out of What You Already Have

Posted on June 13, 2017 by MDS

“You’ve Got Questions . . . We’ve Got Answers”

Is there something really important that I should focus on in 2017?

You should focus heavily on “organic growth” in 2017. My definition of organic growth is reducing expenses and enhancing revenues of existing properties. Committing substantial capital investments in terms of new development and construction is not the only way to realize additional future growth. Here are three basic organic growth strategies:

Revenue Enhancement – Sharpening your pricing strategies while staying competitive and market-responsive.
Improving Occupancy – Since most of your fixed costs are probably already covered, the incremental profit margin for each additional unit occupied soars to approximately 65% for assisted living and up to at least 80% for independent living.
Expense Reduction – As an example, a community consisting of 120 independent living and 35 assisted living/memory care units operating at 90% occupancy results in approximately 50,000 annual resident-days. Reducing operating expenses by just $2.00 per resident-day (PRD) would result in $100,000 of additional cash flow in 2017. The median operating expense benchmark for the above defined community is approximately $112 PRD. A $2.00 PRD expense reduction would decrease operating costs by 2%.

The central budgeting theme for 2017 should be – organic growth – getting more out of that which you already have.

MDS can tailor our services based on your need of revenue enhancement, occupancy and/or expense reduction. An operations analysis can uncover a way to increase your cash flow. Call us today and let’s get started on your success.

Save

It’s a New Year, New Plan, New Game – Welcome 2017

Posted on January 10, 2017May 29, 2018 by MDSadmin

Happy New Year! The beginning of a new year. Does that spark excitement in you? A clean slate to create and take advantage of new ideas and opportunities. Or is it just another day? The current competition in the senior living and housing market can be fierce so if January doesn’t make you take inventory and commit to make a change, you need to get in the game!

Do Not Rest On Your Current Success

Now, this doesn’t mean you must totally revamp your business strategy (unless it is drastically failing). But each year should bring new ideas and new goals. Even if business is booming, resisting innovative additions or changes can see that success falter eventually. Amazon is a great example of implementing new and innovative ideas into an already successful business. No one can deny that Amazon’s business has been on the upswing for an extended period. The secret to their success is that they are a step ahead with new ideas as the previous ideas run their course. The Apple iPhone is another great example. Same product, a phone, yet it is continually being updated and improved as to avoid letting the competition pass them up and it keeps their customers excited for what is new.

Continue reading “It’s a New Year, New Plan, New Game – Welcome 2017” →

One Company, Many Departments; One Strategy or Many

Posted on October 18, 2016July 6, 2018 by MDSadmin

by Kim Jimenez

When talking about your organizational goals, is every department within your company on the same page? Have you shared or even included all departments in goal setting and strategy development? Does your Human Resources department act as part of the strategy team for your community and your company or do they perform as an auxiliary function?

People can make or break your organization. The front-line employees who interact with the public. The CNAs and nurses who care for your residents. The receptionist who greets everyone who walks into your office or facility. The marketing team who puts out the marketing material and branding that can draw in new business (or not). Your top management and executives who define and plan the company brand and strategy. So, don’t you think the department responsible for recruiting all these people need to be an integral part of the company strategic plan? Absolutely!

Think about what your Human Resources Department is responsible for:
• Recruitment and Hiring
• Orientation/Training/Development
• Compensation
• Benefits
• Payroll
• Health and Safety (Risk Management and Worker Protection)
• Employee Engagement (Retention)
• Equal Opportunity Employment Compliance

In addition, each of these activities can be broken down into multiple tasks. Your HR department is responsible for your staffing, the performance of your staff, legal compliance for your organization and keeping your employees happy. No small task!

So, while you expect your HR department to perform in this way, they can sometimes get boxed in to just performing task after task, putting out fires day after day. Do they know what you expect of them? Do you truly know what to expect out of your HR department? Do they understand the strategy of the organization in order to hire the right people for the job? Can they explain your brand, culture and goals to potential employees to be sure they understand the job expectations? If you are experiencing high employee turnover, you really need to explore the answers to these questions.

Make sure you include your HR manager in strategy development. Coordinate efforts between organizational goals and the people who must perform to achieve these goals.

Kim Jimenez has been a regular contributor to the MDS website and MDS blog for the past 15 years. Kim holds a supervisory position in a Fortune 100 company and has experience with a multitude of employee, training and leadership issues. She obtained her Bachelor’s Degree concentrated in Human Resource Management from Southern New Hampshire University

To Understand What Works, Drill Down

Posted on September 30, 2016July 6, 2018 by MDSadmin

[This article by Jim Moore previously appeared in the industry publication McKnight’s Senior Living]

It is generally recognized that the senior living business is becoming more complex with increasing need for operational sophistication and innovative best practices. The senior living continuum of products and services is growing. There is a pressing need to optimize the financial viability of existing communities through revenue enhancement and expense reduction.

Yet in spite of these generally recognized complexities and challenges, many sponsors and owner/operators still focus exclusively on tracking and evaluating their financial position on a broad consolidated basis. This is a great big-picture summary approach, but the true financial dynamics and sensitivity of the organization must address the development of individual cost and profit centers within the continuum. Simply combining three or four businesses within a community into one simple consolidated income statement of revenues and expenses is not the best practice for the future. In reality, each of these major product and service businesses should meet reasonable industry financial benchmarks of:

Revenue
Expenses
Net operating income
Profit margins
Cash flow

Each cost center must initially stand alone before being merged into the consolidated financial statement. Just using consolidated financials can frequently mask unacceptable sub-par performance of one cost center, while penalizing another one.

Clearly owner/operators must provide a seamless consolidated continuum of products and services for their aging residents. But this consolidated continuum is really composed of a number of individual business models with unique challenges and opportunities. Each key element of this continuum must first be segmented as standalone cost and profit centers and then (and only then) combined to track the results on a consolidated basis. Each business element must be successful individually.

Let’s take a look at a typical example. One of my clients operates a comprehensive CCRC that has independent living, assisted living/dementia/memory care, nursing/rehabilitation and assistance-in-living/wellness as major components in their seamless continuum for their residents. These components have each been segmented as these standalone profit centers. Individual income statements exist for each one. These individual income statements include earned operating revenues, operating expenses including direct costs and an appropriate overhead allocation that applies to that cost center, individual net operating income, profit margin and cash flow. These financial statements also include monthly and year-to-date budget versus actual results and, where appropriate, a discussion of why variances occur.

This approach also quantifies and enhances the objective assessment of key staff member performance. Coupled with resident satisfaction scores, this provides an objective criteria for addressing important initiatives.

The senior living continuum is becoming more complex, with services like comprehensive assistance-in-living within independent living, geriatric assessment, memory care and external continuing care at home. Financial performance sensitivity is also increasingly putting more pressure on profits, debt service coverage and capital investment needs impacting overall cash flow for aging physical plants.

The standalone cost and 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.

Need help drilling down your financials? Contact MDS at 817-731-4266

BE PREPARED FOR STRATEGIC CHANGE

Posted on April 25, 2016July 6, 2018 by MDSadmin

Our Industry Is Entering Into The “Second Generation”

When we think of “generations” we typically consider population in general and our peers, children and grandchildren. We know unique generations commonly think differently in terms of lifestyle, finances, how they spend their money and their perception of value . . . in other words their “psychographics” are different. The term psychographics is broadly defined as the use of demographics to determine the attitudes, perceptions and behavior of a particular segment of our population.

Let’s sharpen the definition of population psychographics and apply it specifically to our senior living industry in terms of two important consumer generations; 1) The Silent Generation, ages 70 to 90 – age, income and asset qualified seniors as potential residents for our communities and 2) The Baby Boom and Baby Busters ages 55 to 64 – the decision influencers for senior living. Let’s also consider the professionals that design and operate our communities. These designs and operating strategies are changing.

There are dramatic differences we need to address as we make the critical transition into the second generation of our industry. They involve two primary consumer generations:

1. The Silent Generation – 1925 to 1945. This generation has two major components:

The Depression Era (1929 to 1939). When I talk to seniors and conduct senior focus groups, I always ask, “Does having lived through the Depression in any way affect your financial decision-making today?” The answer is always a resounding “”
World War II (1940-1945). GIs came home from the war, married, bought homes and had children in record numbers (the Boomers). These veterans were motivated to make up for lost time. After getting educated under the GI Bill, they built businesses, careers and built personal savings. They are generally fiscally conservative.

2. The Baby Boomers – 1946 to 1964. The Boomers and the Baby Busters (1965 to 1980) have a current age spectrum of 35 to 69. Their psychographics are:

The “Gray Flannel Suit” Era (1946 – 1980). During this period, many men and women entered the corporate world prepared to spend their careers with one employer. They were generally “team players” – conforming, spending their time responding to the requirements of their employers as they worked through their careers.
Vietnam Era & the Rebellions of 1960s & 1970s. This troublesome period (1960 – 1974) created large groups of disillusioned veterans and many “maverick consumers”. A large portion of the population did not accept these nonconformists, which only triggered further rebellion against “the establishment”.

The younger element of the Silent Generation and the Boomers are the foundation of the emerging second generation of our industry. Their attitudes and opinions have also been shaped by the boom/bust cycles of the past 20 years and the very low savings rates experienced by fixed income seniors.

The typical life cycle of the Silent and the Boomer generations has been defined as approximately 18 to 20 years old respectively. The modern day senior living industry “first generation” life cycle is defined as approximately 30 years (1985 to 2015). Just like consumer psychographics and trends, some dramatic strategic changes are taking place in our industry

Tomorrow’s senior living marketing prospects are no longer “the usual prospects.” They are raising the bar of expectations and will be much more articulate in expressing their wants, needs and perceptions of value. It’s time to redouble your efforts at understanding today’s age 75-plus consumers while becoming more savvy about how you market to them. Actually, quite a lot is known about the current mindset of the senior consumer; the challenge is translating this knowledge into practical communication and marketing strategies. Take, for example, pricing. Most of us know we should sell tangible value before price. But, in our zeal to tell our story, we forget that the process involves three very important steps:

1) Truly understand the senior consumer mindset

2) Identify and correct common senior misconceptions

3) Deploy consumer-focused, market-driven positioning

Finally, realize that we are evolving to another generation of prospects and we are dealing with senior consumers who have experienced a number of life-changing events. The financial implications are enormous.

A word of caution: Don’t get misled by the opinions expressed by your existing residents. These opinions may no longer necessarily reflect the changing mindset of your future residents.

Jim Moore is president of Moore Diversified Services, Inc., a national Senior housing and health care consulting firm based in Fort Worth, Texas. He has written several books about assisted living and Senior housing, including Independent Living and CCRCs. Jim is also a regular contributor to industry publications such as McKnights Long Term Care News and various industry association publications. Contact MDS at 817-731-4266 to discuss your consulting needs.

Management Mondays: Communication is Key

Posted on March 14, 2016July 6, 2018 by MDSadmin

Are your employees meeting your organization’s standards and goals or just barely reaching minimum expectations? Are you seeing a decline in resident satisfaction? Are operations just not up to par and not sure why? One issue you must investigate is communication. Are goals and decisions getting communicated effectively and completely to those down the line? Can your front-line employees restate policies, procedures, and goals as well as how and why these things apply to them?

The decisions you make at the top are important but they will not matter much if the actions of those employees on the “front lines” do not line up with those decisions. Employees need to be, MUST be, invested and informed: Do they know your organization’s mission? Do they realize how they speak to or interact with people affect that mission? Are employees getting proper feedback on their performance in regards to company standards? Upper management needs to communicate goals, missions, and reasons behind decisions that affect employees. If decisions seem random to employees, they are less likely to embrace them and support them. If employees can see how decisions improve service, improve resident satisfaction, improve business and therefore benefit them in some way, they are more likely to support you in these decisions.

On the reverse side, can employees reasonably incorporate expectations into their daily routines? Are the policies and procedures handed down to your front-line employees realistic? Are you asking already overworked employees to do more, take on even more than they already have time for? Again, communication is key. Get with your employees and get feedback on new initiatives you are handing down to them. How do they see these affecting their work? Do they feel it will make the difference you say it is going to make? Are these initiatives resident centered or business centered? Those employees involved directly with the residents may give a different perspective or creative ways to implement actions those in corporate may not have thought of. Keep in mind, while something looks good on paper in the boardroom, implementation may be more complicated in the day to day operations of a resident-centered facility.

Another thing to consider: Do employees report to more than one supervisor or manager? This can be complicated when each supervisor has different priorities. Make sure priorities and tasks are consistent for each employee and there is not a conflict of “whose requests should I make a priority.” Again, communication on ALL levels as well as communication going both up and down the organizational ladder will make for a more cohesive workgroup and increase the likelihood of meeting and even exceeding goals.

MDS can help evaluate where your organization stands with a comprehensive operational analysis. A follow-up strategic planning session or retreat can help make sure your current business goals are on track and develop new and innovative ideas.

Kim Jimenez has been a regular contributor to the MDS website and MDS blog for the past 15 years. Kim holds a supervisory position in a Fortune 100 company and has extensive experience with a multitude of employee, training and leadership issues. She is currently obtaining her degree in Human Resource Management at Southern New Hampshire University

Do You Take Advantage of PR or Public Relations Opportunities?

Posted on October 29, 2015July 23, 2018 by MDSadmin

PR or Public relations should be in everyone’s marketing communications tool kit.

As a Senior Living Consultant working with many Senior Living clients over the years, this is one form of community promotion that tends to be over looked the most. So what exactly is PR? PR or public relations, the noun, as defined by Meriam-Webster.com is as follows:

the activity or job of providing information about a particular person or organization to the public so that people will regard that person or organization in a favorable way

OR

the relationship between an organization and the public

What is PR?
PR is different from advertising in the fact that in advertising you pay for the privilege of controlling the timing, placement, and message associated with it. While with PR, since it is generally free, the control lies in the hands of the writer and media outlet providing you the coverage. I once heard that “Advertising is what you pay for, PR is what you pray for.”

There are many forms of PR. Most of the time the words PR conjure up images of events at opposite ends of the spectrum. Either a publicity stunt where someone is doing something that is outrageous and crazy to call attention to themselves, their company or their mission, or a company spokesperson trying to put a positive spin on a potentially bad situation that has arisen for the company.

Examples
An example of an outrageous PR stunt would be similar to the flash mob dancing troupe a few years ago that held an impromptu performance at Grand Central Station, it ended up netting them 28 million YouTube hits and a lot of media exposure. An example of positive spin on a bad situation would be the aftermath of the BP oil spill in the Gulf of Mexico. There have been subsequent news conferences and advertising campaigns trying to convince the public, that the gulf coast is now better than ever.

The kind of PR I am talking about is somewhere in the middle of these two extremes. The press release, media tours, special events, sponsorships, public service/public interest stories are all form of PR that your company/community can use to build brand awareness. These types of PR also show that your brand is part of the greater community and can generate loyalty in a larger audience.

Put PR To Work For You
One of the great things about PR is that it is happening all around us and while we get the intended message, we don’t realize the company or brand is promoting itself to us. Instead of thumping our chest telling everyone how great our company and/or products are through advertising, PR is a subtle way of getting a company name out by providing useful information and activities to others.

PR is also a way to have others validate you as an expert. The general thinking of readers or viewers is that they surely wouldn’t be quoting you or doing a piece on you or your company/community unless you were an authority, the best and most knowledgeable in your field.

November Public Relations Webinar
As part of MDS’ “Plug-In and Prosper” Webinar Series, the November 18, 2015 webinar will be “Generating Public Relations for Your Community”. The webinar will focus on the meaning and use of public relations and why it’s important. I will discuss PR as part of a well-rounded marketing communication plan, the benefits of PR, and how it can enhance your relationship between your company and the public.

So mark your calendar and join me on Wednesday, November 18 at 1:00 pm (CDT) for this important webinar.

I look forward to having you join me for this complimentary monthly webinar! You can also check out our past webinars on the Moore Diversified Services YouTube channel!

Registration Link

Roy Barker is Director of Special Projects at Moore Diversified Services, a Fort-Worth, Texas-based organization specializing in Senior Living operations analysis, marketing development, and investment advisory services. Roy is an authority in the field of employee turnover analysis and retention strategies.

Do You Market For Human Talent? Part 2 of 2

Posted on October 17, 2015July 23, 2018 by MDSadmin

How Often Are You Recruiting For New Top Human Talent?

It is easy to form a perception that talent should only be recruited when there is a position vacant in your company, but unfortunately, that kind of thinking is not very helpful to your company. You should always be recruiting and finding top talent so that they are ready when positions open up for any reason.

Don’t Rely on the Internet Alone

The advent of the internet and job boards was thought to be the end- all- be- all for recruiting. But, it has proven to be a double edge sword when it is the only method used. The great thing about internet job postins is that you can cast a wide net by broadcasting your current job openings to many individuals that may be looking for employment in your town, or even across the country. The downside is that you can be flooded by many applicants that are not anywhere close to being qualified for an opening in a specific position.

Now, relate this to your community’s marketing department for new residents. Can your community just post an advertisement saying “We have rooms available”, and the right person shows up and there you go, you have a new resident? Not quite, or there would be no need to have a sales and marketing team. It should be considered the same with community staffing. It takes a lot of work and effort to find the right fit for the community, both for residents and staff.

Always Be Recruiting

It’s important to augment the posting of job openings through portals such as Indeed, Career Builder, or others in this category. Talent Mangers must actively recruit to find the best employees available for the many different job functions within the community/company. This includes giving talks throughout the community at different functions and gatherings of people like civic clubs, high schools, junior colleges, colleges, and other professional organizations throughout your operating region. It is very important to educate as many people as possible about the existence of your community/company, that it is a great place to work with many opportunities besides those of just direct caregivers. Target programs and organizations can include, but are not limited to, those affiliated with business, nursing, culinary, and hospitality.

LinkedIn is also a great place to gather potential contacts for professional level jobs. LinkedIn should be used to identify individuals with skills that will be beneficial to your team now and in the future. Don’t limit yourself to just those that may currently hold positions in the Senior Living industry, but look in other industries for transferable skills as well. Establish casual relationships in the beginning and watch how they interact with others in their peer groups. Do they post timely and relevant material? Do they have original thoughts? How many connections do they have (a peek at how good they might be at networking and recruiting prospective residents)? Do they seek out and participate in continued education opportunities? LinkedIn will also let you glance into the individual’s employment past. With this feature, it is easy for an individual to write anything they want with little to no cross-checking by others, so proceed with caution. Trust, but verify. Once individuals are identified as potential employees who could be an asset to your team, then it is prudent to reach out and make a connection with them.

Start an HR newsletter to keep current employees and those interested in working for your company informed of current happenings within your company/community. Not necessarily resident-focused, but more about job openings, training, and highlighting employee accomplishments. The added communication will go a long way in both employee retention and recruiting efforts. While this form of communication usually will not lead to instant gratification in the recruiting of other professional individuals, it will build a pattern of contact that over time will lead to candidates keeping up with your company. If they like what you have to say, it will leave them with the sense of wanting more information about company activities and available openings.

So get out from behind the desk and computer screen, and endeavor into the community, market yourself, your industry, and your company for great talent. A great side effect is that while you are getting the word out of your community/company, simultaneously you just might accidentally uncover a prospective resident or family member looking for a loved one.

Make your company an employer of choice, not an employer of last resort!

Roy Barker is Director of Special Projects at Moore Diversified Services, a Fort-Worth, Texas-based organization specializing in Senior Living operations analysis, marketing development, and investment advisory services. Roy is an authority in the field of employee turnover analysis and retention strategies.