Preliminary Stuff 7 Numbers • Handout and slides will be available at YourCaringHouse.org/OHN2018 YOU Need to Know • Time Presented by Edward W. Long, JD, • Questions Caring House Omega Home Network conference June 2018 Home Age Spectrum Focus Spectrum Just Will Open Open Care and Business of Getting Open Under 10+ Support for Keeping the Started Soon 6 Months Years Residents Home Open Sustainability YOU need to know No money, no mission. Page 1
Small business failure • First few years are the hardest • 50% of businesses fail to survive 5 years #1: Annual Cash Needs • 66% fail to survive 10 years • Cash flow = Most frequent reason that businesses fail (82%) • Not enough cash available when needed How to figure Two examples Cash Needs Alpha House Beta House Total up all cash needs of your home for the year Direct operations $240,000 $480,000 including Administrative and general $30,000 $60,000 • Direct operations Fundraising $30,000 $60,000 • Administrative and general Capital additions and replacements $20,000 $20,000 • Fundraising Building prudent reserves $40,000 $80,000 • Capital additions or replacements Funds for growth (home #2) $50,000 • Building prudent reserves Total $360,000 $750,000 • Funds for growth How to use Reality check • Part of formulating your annual budget • Before opening, at Caring House we did a pretty good job of projecting our annual cash needs for • Key input for Cash Coverage Ratio (#2) operations, administrative and fundraising. • Key input for Cost per Resident per Day (#5) • But we left out the need to build our cash reserves to a prudent level. Page 2
#2: Cash Coverage Ratio How to figure Two examples Alpha House Beta House Available cash (excludes debts due within 12 months and restricted A Available cash $70,000 $200,000 cash can’t spend within 12 months) B Annual cash need $360,000 $750,000 Divided by C Divide by 12 for Average monthly $30,000 $62,500 need Average monthly cash need D Cash coverage ratio (A divided by C) 2.33 3.2 (annual cash needs [see #1] divided by 12) Nonprofit industry target range How to use • High 24.0 (two years) • Measure monthly (check the dip stick). • Low 6.0 (six months) • Red-flag level at Caring House is less than 2.0 (alert the board). • A low cash coverage ratio means you need to bring in more money or you need to reduce cash outflows. Page 3
How to figure • Total number of days bedrooms occupied by residents during the year #3: Resident Days How to use • Key input for Occupancy Rate (#4) • Key input for Cost per Resident per Day (#5) #4: Occupancy Rate How to figure Two examples Alpha Beta Resident Days (from #3) House House A Resident Days (see #3) 876 1,533 Divided by B Number of bedrooms in the house 3 6 C Days in the year 365 365 365 days times number of bedrooms in the house D Maximum possible number of resident days 1,095 2,190 (maximum possible number of resident days) E Occupancy Rate (A divided by D) 80% 70% Page 4
How to use Reality check • Helps develop calculations of Cost per Resident per • Before opening, at Caring House we projected we’d Day (#5) ramp up our occupancy so that we’d reach a 70% occupancy rate in a month by the end of our first • Helps in decisions on whether to add bedrooms year. • It actually took us more than two years to reach 70% in a month. Why it matters #5: Cost per Resident You need to know and be able to tell donors and residents/families what it costs to serve a resident. per Day • Whether you’re relying on donations or resident/family contributions to help pay costs of care Alpha House (3 bedrooms; 1,095 How to figure maximum resident days) Annual cash needs (#1) Annual Cash Resident Occupancy Cost per Resident Needs (#2) Days Rate per Day A $360,000 986 90% $365 Divided by B $360,000 876 80% $411 C $360,000 767 70% $469 D $360,000 657 60% $548 Resident Days (#3) E $360,000 548 50% $656 F $360,000 438 40% $822 G $360,000 329 30% $1,094 Page 5
Beta House (6 bedrooms; 2,190 Alpha House maximum resident days) Annual Cash Resident Occupancy Cost per Resident Needs (#2) Days Rate per Day A $750,000 1,971 90% $381 B $750,000 1,752 80% $428 C $750,000 1,533 70% $489 D $750,000 1,314 60% $571 E $750,000 1,095 50% $685 F $750,000 876 40% $857 G $750,000 657 30% $1,141 Beta House Reality check • At Caring House, when we opened, we over- estimated our Occupancy Rate and under- estimated our cash needs, so we told donors and residents/families a Cost per Resident per Day that was about 50% of actual. • Made it much harder to shift to the real number. Why it matters • Caregiver costs are often 60% or more of total #6: Cost per Caregiver costs. Hour Page 6
How to figure Three examples Total up Alpha Beta House House Outside • Basic hourly rate Payroll Payroll Agency • Taxes, Social Security, Medicare, state disability, etc. A Basic hourly rate $12.00 $12.00 paid by employer B Taxes, etc. (9%) 1.08 1.08 • Workers Compensation cost C Workers compensation insurance 1.44 1.44 (12%) • Benefits like health insurance D Contribution to employee health 0.84 insurance (7%) E Total hourly rate $14.52 $15.36 $20 - $25?? Don’t forget overtime rules How to use Reality check • Part of formulating annual budget • At Caring House our first year Workers Compensation rate was over 20% -- a big surprise • Part of decision on hiring own staff vs. obtaining from a staffing agency Why it matters #7: Bedrooms Needed Page 7
Why it matters How to figure • Right-sizing your home for the population you’ll 1. Determine the population of the area you’ll draw serve. from • Not too big. 2. Divide by Goldilocks Factor of 30,000 to 40,000 • Not too small. 1. Higher end of range if Omega Homes concept new 2. Higher end of range if population is younger than • Just right -- Go for Goldilocks. average (see Population Bonus in Handout) 3. Result is estimate of the number of bedrooms needed to serve that population 4. Subtract bedrooms already existing Examples (bedrooms needed, Population you’ll draw from using a 35,000 Goldilocks Factor ) • Your city Area 1 Area 2 Area 3 Area 4 Area 5 • Your county A Population 150,000 300,000 500,000 750,000 1,100,000 • Your region B Divided by 35,000 35,000 35,000 35,000 35,000 • How far will people travel to your location C Result 4.3 8.6 14.3 21.4 31.4 D Subtract: 2 0 5 0 22 Tulsa, OK: City = 403,505; Metropolitan Area = Existing 981,005; Metropolitan Statistical Area = 1,151,172 E Needed now 2.3 8.6 9.3 21.4 9.4 How to use Reality check • Planning for a new home or to add bedrooms to an • At Caring House, we’re the only Omega Home in existing home Los Angeles County, CA • Population 10 million • Population younger than average • Omega Home concept is new here • Using a 40,000 Goldilocks Factor tells us that 250 bedrooms are needed in our area (we have 5 bedrooms) • Lots of room to grow Page 8
Wrapping up • Complete your handout for your home • Show your Numbers Geek some love • Handout and slides will be available at YourCaringHouse.org/OHN2018 Page 9
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