Upload
dinhnhu
View
217
Download
2
Embed Size (px)
Citation preview
©20
14 C
lifto
nLar
sonA
llen
LLP
©20
14 C
lifto
nLar
sonA
llen
LLP
CLAconnect.com
Strategic Financial and Capital Planning
©20
14 C
lifto
nLar
sonA
llen
LLP
CHAD D. KUNZE, CPA PRINCIPAL – HEALTH CARE CliftonLarsonAllen LLP – Phoenix, AZ
Chad D. Kunze, CPA is a principal in the health care group at CLA, focusing his time on serving senior health and aging services clients. He leads the health care practice for the Southwest Region. Chad is a certified public accountant with more than 20 years of experience in public accounting, auditing, and business consulting devoted entirely to the health care industry. He also provides regular consultation regarding financial client service and Medicaid/Medicare reimbursement consulting for various health care providers around the country. Chad has also focused his efforts in auditing and consulting with various HUD financed projects and facilities around the country. Chad has completed audits and reviews for numerous health care and HUD financed housing organizations. His background includes highly developed expertise in audits of senior living and long-term health care organizations, CCRC’s and HUD/Single Audit engagements. He also provides operational and financial consulting services to nursing facilities, home health agencies, CCRC’s, therapy providers, assisted living, developmentally disabled and senior housing facilities. During the past two years, Chad has focused on the various opportunities and challenges for providers related to health care reform and payment reform. Due to the changing environment within healthcare, He has presented for many clients, boards of directors, associations and other groups as to the impact of health care reform now and into the future. Chad is an active member of the American Institute of Certified Public Accountants as well as other State Societies of CPA’s. He has been an active member of LeadingAge, AHCA, LeadingAge-Arizona, Arizona Health Care Association, Arizona ALFA, LeadingAge-California, LeadingAge-Colorado, LeadingAge-Missouri, LeadingAge-Kansas, LeadingAge-Ohio, Life Services Network, and various other industry associations related to aging services and senior housing options throughout the country.
©20
14 C
lifto
nLar
sonA
llen
LLP
DENNIS MASCHKE, CPA Manager CliftonLarsonAllen LLP – Phoenix, AZ
Dennis is a Manager in CliftonLarsonAllen’s State and Local Government Group. Dennis has been with CliftonLarsonAllen for eight years and dedicates 100 percent of his time to serving government clients, including those requiring compliance audits under OMB Circular A-133. Dennis’ previous experience includes compilation of financial statements, reconciling accounts, preparing audit documentation, consulting engagements, and other agreed upon procedures. Dennis is currently responsible for overseeing government audits, supervising staff, compiling financial statements, client relations, and outsourcing/consulting engagements. Dennis graduated from Michigan State University with a bachelors of arts in accounting and later went on to obtain his Masters in Business Administration from Davenport University in Michigan. He is currently in the process of completing his exams to be a Certified Governmental Financial Manager. He is a member of the American Institute of Certified Public Accountants, Arizona Society of Certified Public Accountants, and is a certified public accountant in the State of Arizona.
©20
14 C
lifto
nLar
sonA
llen
LLP
Objectives
Importance of Strategic Planning – it’s not just budgeting
A proven process for success
Tools important but process is key!
Recurring process – not placed on the shelf to accumulate dust
Applicable to Non-Profits and Governmental Entities
©20
14 C
lifto
nLar
sonA
llen
LLP
STRATEGIC CONSIDERATIONS
5
©20
14 C
lifto
nLar
sonA
llen
LLP
6
Solving the Puzzle
Market/ Economy
Operations
Mission
Strategy
How do you make sure the financial piece of the puzzle fits?
Finance
©20
14 C
lifto
nLar
sonA
llen
LLP
7
Market Driven, Financially Viable
WHAT WE
CAN DO
©20
14 C
lifto
nLar
sonA
llen
LLP
8
How Do We Do More?
©20
14 C
lifto
nLar
sonA
llen
LLP
9
How Do We Do More?
WHAT WE
CAN DO
©20
14 C
lifto
nLar
sonA
llen
LLP
10
Life Cycle With No Repositioning
Strength
Weakness
Time Financial Viability
Market Defendability
When the Market Position First Declines, the Finances still
increase.
Once the market position deteriorates and affects occupancy the financial position starts a rapid decline!
©20
14 C
lifto
nLar
sonA
llen
LLP
Strength
Weakness
Time Financial Viability
Market Defendability
Life Cycle With Repositioning
11
Repositioning From Financial Strength
©20
14 C
lifto
nLar
sonA
llen
LLP Implication of Change - Sigmoid Curve
12
Best Place to Start New Curves
Decline
Initiation
Initial Challenges
Growth and
Success
©20
14 C
lifto
nLar
sonA
llen
LLP Potential Courses of Action- From Strength
Do Nothing
Strong Metrics
Market Need Served
Low Probability of New Entrants
Assets Meet Needs
Reposition
Market/Service Opportunities
Balance Sheet Strength
Repositioning Stabilizes/Improves
Credit
Adequate Capital Capacity
Expand What We
Do
Multi Site
Different Geography
Acquire Others
New Business Ventures
Entrepreneurial
Additional Market Needs
Increased Risk
13
©20
14 C
lifto
nLar
sonA
llen
LLP
Occupancy is down, but the good news is:
14
operating costs were really low…
©20
14 C
lifto
nLar
sonA
llen
LLP Potential Courses of Action- In Decline
Repositioning
Market/Service Opportunities
Balance Sheet Strength
Repositioning Stabilizes/Improv
es Credit
Adequate Capital Capacity
New Debt/Equity
Ability to stabilize credit
Provide savings from better
capital structure
Improve Capital
Capacity
Restructuring
Inability to improve
financially
Limited Market/Service Opportunities
Buy Time for “Plan B”
No Capital Capacity
Sale/Affiliation
Limited Market/Servic
e or lack of Capacity to
Access Growth
No Capital Capacity
Bankruptcy
Last resort
Failed Restructuring
Limited Capital Capacity Exiting
Bankruptcy
15
©20
14 C
lifto
nLar
sonA
llen
LLP Financial Ratios– What Do They Tell Us?
16
TODAY
How have we done in the past?
Liquidity and Capital
Ratios
Operating Ratios
Where are we
headed?
PAST FUTURE
©20
14 C
lifto
nLar
sonA
llen
LLP
150 Days
60 Days
0 Days
350 Days
Liquidity- Days Cash on Hand
STAY OPERATIONAL
WEATHER A STORM
ACT STRATEGICALLY
17
©20
14 C
lifto
nLar
sonA
llen
LLP CCRCs -Key Financial Drivers- Ideal Balance?
18
Operating Revenue and Expenses
State and Federal Funding
Contributions/ Fund Raising
Investment Income
High Low Managerial Control
Relia
nce
on D
river
Low
High
©20
14 C
lifto
nLar
sonA
llen
LLP
Key Government Ratios
Quick Ratio
Average Receivable Collection
Period
Earnings Margin
Budgetary Cushion
Debt Service Burden
Cash & Equivalents + ST Investments Current Liabilities
Ending Receivable Revenues/365
Change in Net Position Operating Revenues
Total Unrestricted Fund Balance Revenues & Transfers
Total Debt Service Requirements Revenues
©20
14 C
lifto
nLar
sonA
llen
LLP
CLA Intuition™ Strategic Capital Planning
20
©20
14 C
lifto
nLar
sonA
llen
LLP
A Change in How We Plan
21
©20
14 C
lifto
nLar
sonA
llen
LLP 5 Steps to Strategic Success
22
©20
14 C
lifto
nLar
sonA
llen
LLP
23
1. Establish the Baseline
Provide financial feedback relative to current performance
Must look long-term for there to be value in the process
Must define the “status quo” strategically
An opportunity to understand current and expected financial performance
©20
14 C
lifto
nLar
sonA
llen
LLP
24
1. Establish the Baseline (cont’d)
Higher Accuracy
Short Term
Horizon
Lower Accuracy
Long Term
Horizon
Budgets
Short term planning
EVEN THOUGH LESS ACCURATE…CRITICAL TO COVER LONG TERM
Long term strategic planning
©20
14 C
lifto
nLar
sonA
llen
LLP
25
Revenue Expenses Funding
Occupancy Rates Mix Entrance Fees
Operations Interest
Contributions Debt Equity
Capital
Routine
What is the Status Quo?
©20
14 C
lifto
nLar
sonA
llen
LLP
26
2. Establish Financial Targets
Determine what financial metrics are important
Define your organization’s targets •Each organization is different •Financial covenants are the FLOOR
Provides an opportunity to build consensus around how strong we want to be financially
Establishes the ground rule for future financial work and evaluation of strategic initiatives
Targets are not “set in stone” but must be discussed if changed
©20
14 C
lifto
nLar
sonA
llen
LLP
27
2. Establish Financial Targets Upfront (cont’d)
Actuarial Targets
Margin Targets
Liquidity Targets
©20
14 C
lifto
nLar
sonA
llen
LLP
28
2. Establish Financial Targets Upfront (cont’d)
• Establish Goals Upfront
• Short Term and Long Term
Set Targets
• Use Targets to Plan
• Understand Direction
Chart the Future • If Targets not met,
agree on solutions • Re-evaluate
targets
Revisit Outcomes
Targets establish financial discipline and planning trip wires”…it sets the stage to have a “value” discussion regarding strategies vs. hoped for financial targets and results.
©20
14 C
lifto
nLar
sonA
llen
LLP
29
3. Evaluate Capital Capacity
Evaluate capital capacity based on
targets
Understand general direction of financial
performance Are results acceptable?
Are we generating sufficient “excess capacity”? •What needs to change if not?
How are monies being committed or
assigned?
Is there a fund established for
these future projects?
Governance and/or voter
approval
Expenditure Limitation
State of Federal Grant
Funding Available?
General Considerations
Government Considerations
©20
14 C
lifto
nLar
sonA
llen
LLP
30
3. Evaluate Capital Capacity (cont’d)
Helps gauge how the organization generates resources that it can use to: reinvest in programs or facilities or
strengthen balance sheet and financial performance
Capital capacity is derived based upon the EXCESS liquidity and EXCESS borrowing capacity, above targeted Days Cash on Hand and Debt Service Coverage Ratios
Step #2 was used to establish the “targets”
©20
14 C
lifto
nLar
sonA
llen
LLP
31
3. Evaluate Capital Capacity (cont’d)
EXAMPLE Days Cash on Hand
Target
Excess Liquidity
©20
14 C
lifto
nLar
sonA
llen
LLP
32
3. Evaluate Capital Capacity (cont’d)
EXAMPLE Debt Service
Coverage Ratio Target
Borrowing Capacity
©20
14 C
lifto
nLar
sonA
llen
LLP
“Affordable” Capital Capacity
Debt
Revenues
Debt
Cash Flows (Profitability)
Income Statement Strength
Debt
Cash Reserves
Debt
Net Assets (Equity)
Balance Sheet
Strength
3. Evaluate Capital Capacity (cont’d)
33
©20
14 C
lifto
nLar
sonA
llen
LLP
34
3. Evaluate Capital Capacity (cont’d)
Capital Capacity
Annual Income
Available For Debt Service
Financial affordable capital capacity is directly correlated to internal financial targets and future expectations of the organization
Target DSCR
Existing Debt Service
BORROWING CAPACITY
Beginning Unrestricted
Cash & Investments
In- flows
Out- flows
Ending Cash
Target Reserves
Defining Affordable Debt and Capital Capacity
EXCESS LIQUIDITY
©20
14 C
lifto
nLar
sonA
llen
LLP
35
3: Evaluate Capital Capacity and Targets (continued)
©20
14 C
lifto
nLar
sonA
llen
LLP What Impacts “Capital Capacity”?
Repairs and Maintenance Yes No Capital Capacity Impact Reposition, Renovate, Replace Yes No Capital Capacity Impact Level of fee increase Yes No Capital Capacity Impact Adjustment in pricing Yes No Capital Capacity Impact Adding staffing position Yes No Capital Capacity Impact Adjustments to reimbursements Yes No Capital Capacity Impact Changes in investment returns Yes No Capital Capacity Impact Changes in market/economy demand Yes No Capital Capacity Impact Changes in funding Yes No Capital Capacity Impact Refinancing debt Yes No Capital Capacity Impact Changes in cost of capital Yes No Capital Capacity Impact Changes in direction/administration Yes No Capital Capacity Impact Expenditure limitation Yes No Capital Capacity Impact State of Federal Grant Funding Yes No Capital Capacity Impact
©20
14 C
lifto
nLar
sonA
llen
LLP
37
4. Evaluate Strategies
Determine Strategic
Needs
Profit Strategy
Measure Impact of Strategy • Individual •Aggregate
©20
14 C
lifto
nLar
sonA
llen
LLP
38
4. Evaluate Strategies (cont’d) Examples: Higher levels of capital
4 Rs (Repair, Renovate, Reposition, Replace)
Addition (or Reduction) of existing services/buildings Operational efficiencies Bundling vs. Unbundling of Services Re-pricing of services Expand outreach Increases/Decreases in labor pools Healthcare Reform and ACA impact Changes in funding/contributions/reimbursement
©20
14 C
lifto
nLar
sonA
llen
LLP 4. Evaluate Strategies (cont’d)
39
Sample Community Strategic Financial Planning Model
2014 PERFORMANCE
($1.4M) / -9.1% 2014 Operating Margin
Basis = 2014 Budget
REVENUE AND EXPENSE INFLATION
2015 2016+ 2015 2016+ 2015 2016+
Skilled NursingMedicare 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Medicaid 3.00% 3.00%
Private & Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
CONTRIBUTIONS$250k Contributions (2015) $250k Contributions (2016+) 0.0% Inflation (2017+)
INVESTMENT RETURNS3.00% Overall Returns (2015 - 2017) 3.00% Overall Returns (2018+)
ENTRANCE FEES 2014 Budget inflated 3.00% annually - $2.2M - $2.9M
CAPITAL SPENDING Book to Mgt Projection Cash & Investments: $27.1M $27.0M
Routine Capital = $836k in 2015 to $1,060k in 2023 Yrs 1 - 5 (6.0% of Rev.) / (59.6% of Dep.) Yrs 6 - 10 (6.0% of Rev.) / (62.4% of Dep.)
Labor
Non-Labor
Revenue Inflation Expense Inflation
Independent Living
Assisted Living
631 613 596 580 564 550 535 522 509 496
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Days Cashon Hand
1.49x 1.43x 1.48x 1.51x 1.53x 1.55x 1.58x 1.60x 1.63x 1.66x
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
DebtService
Coverage(MADS)
-7.4% -7.4% -7.4% -7.4% -7.4% -7.4% -7.4% -7.4% -7.4% -7.4%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
NetOperating
Margin
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0.0%
2015 2016 2017 2018 2019 2020 2021 2022 2023
Net InflationarySpread (%)
Set Baseline
-0.9% -1.4% -0.8% -0.6% -0.5% -0.3% -0.2% -0.1%
0.0% 0.1%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Net…
Sample Dashboard- Operations
©20
14 C
lifto
nLar
sonA
llen
LLP
Sample Dashboard- The “Baseline”
40
4: Evaluate Strategies-(continued) Example
©20
14 C
lifto
nLar
sonA
llen
LLP
Sample Dashboard- With Strategies
41
4: Evaluate Strategies-(continued) Example
©20
14 C
lifto
nLar
sonA
llen
LLP 5. Identify Shortfalls and Create a Plan
42
How do we fund our
strategies?
©20
14 C
lifto
nLar
sonA
llen
LLP
Step
1
Step
2
Step
3
LEVEL
4
LEVEL
5 START IMPLEMENTING
Revisit Targets
Prioritize Strategies
Revisit Strategies
Revisit Baseline
5: Identify Shortfalls and Create a Plan to Bridge Gaps
©20
14 C
lifto
nLar
sonA
llen
LLP
• Can validate plans • Can “dream”… and chart a path to achieve the
dream Mission
• Can help build consensus around strategic imperatives
• Can help create understanding of collective challenges
Leadership
• Can help build consensus around operating discipline Conduct of Operations
• Protect and enhance resources needed for mission • Resource allocation amongst competing needs • Capital investments are appropriate
Fiduciary
• Organizing board to carry out functions of governance
Board Organization and Development
A Proven Approach
44
©20
14 C
lifto
nLar
sonA
llen
LLP
QUESTIONS?
45
©20
14 C
lifto
nLar
sonA
llen
LLP
46
©20
14 C
lifto
nLar
sonA
llen
LLP
CLAconnect.com
twitter.com/ CLAconnect
facebook.com/ cliftonlarsonallen
linkedin.com/company/ cliftonlarsonallen
Chad Kunze, CPA Principal [email protected]
602-604-3534 Dennis V Maschke, MBA, CPA Manager [email protected] 602-604-3623
46