Avoid the “Catch-22” by Investing in Your Community

iStock_000012257765_MediumBy Rob Love, President and CEO

It happens over and over: Love & Company is called in to help a community overcome a census challenge, and we find that the community has not kept up with the times. Residence and amenity areas are tired with out-of-date finishes, and the community does not present well. On top of that, census has been down long enough that cash reserves have been significantly decreased, and the community is not able to reinvest in itself. It’s the classic “Catch-22” of CCRC marketing: The community needs to invest in itself to make itself more marketable, yet it can’t afford to invest in itself without increasing sales.

This is why it was so refreshing to hear Goodwin House Alexandria’s story at the recent LeadingAge National Meeting & Expo in Nashville. Goodwin House leadership and board realized 10 years ago that its nursing facilities (with all semiprivate rooms) were not sustainable, especially for a community of its caliber. They also knew that they couldn’t pay for a brand new nursing center by adding a bunch of new independent living residences: They didn’t have the space. So they planned instead: Over the last 10 years—little by little—leadership carefully managed the community’s financials (even though Goodwin House Alexandria was already in good financial health), drastically improving the community’s cash position from less than 300 days cash on hand to well over 800 days cash on hand, ultimately putting themselves in position to replace their nursing product with an entirely new center.

Goodwin House CEO Kathy Anderson, who presented the community’s situation at a session entitled, “Integrated Master Repositioning,” said that the process worked for them, but it wasn’t without its challenges. The board toiled over what to do, and there was tension. Should they take on a project they felt they needed, but that they knew could not pay for itself? Ultimately, the moral imperative won out: They had to do what they had to do, and they had built up the funding, so they moved forward with the new project.

Having the foresight and commitment to streamline your operations and build up reserves to reinvest in your community’s future is not only a good idea, it is an imperative. This point was driven home by another LeadingAge session the following morning, “The Intersection of Pricing and Marketing,” led by Larksfield Place CEO Reginald Hislop.

imperative

 

In that session, Mr. Hislop offered an important budgeting practice that can be used to avoid the cliché Catch 22: Fund your depreciation with cash. By building up cash reserves equal to or greater than your depreciation, you create the funds needed to keep your community both current and competitive.

The dilemma Goodwin House solved is a significant problem faced by many organizations, but if leadership uses the lessons preached by Mr. Hislop and practiced by Goodwin House, they won’t find themselves in the dilemmas we so often face.

And let’s face it: Upgrades are needed. We are in a very tight market. The people who are turning 80 this year were born in 1934, during the “birth dearth” of the great depression. But as we look five and ten years down the road, the number of people qualified to live in retirement communities will increase significantly. This generation has been in model home showrooms, knows what top-grade finishes are, expects solid-surface countertops, and is looking for their next home to be something they can be proud of and comfortable in. And that includes the community’s amenities, as well as the residences.

When that demographic shops the aisles of competing continuing care retirement communities (and they are out there today!), the customer will—time after time—choose the community that delivers the greatest value, which is the combination of both quality and price. How a community delivers on that expectation is dependent on its foresight, planning and drive to stay ahead of consumer demand—and out of a sticky situation.

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