Q: Is there something really important that I should consider while budgeting for 2017?
A: Focus heavily on “organic growth.” My definition of organic growth is reducing expenses and enhancing revenues of existing properties. Three strategies:
- Enhance revenue. Sharpening your pricing strategies while staying competitive and market-responsive.
- Improve occupancy. The incremental profit margin for each additional unit occupied soars to approximately 65% for assisted living and 80% or more for independent living.
- Reduce expenses. 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 per resident-day, or PRD, would result in $100,000 of additional cash flow in 2017. The median operating expense bench- mark for the above defined community is approximately $112 PRD. A $2 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. In fact, don’t wait until 2017 to improve. Do it now.
Jim Moore runs a national senior housing and healthcare consulting firm based in Fort Worth, TX. He has written several books about assisted living and senior housing, including “Assisted Living Strategies for Changing Markets.”