Operational and Compliance Considerations for 2021

Operational and Compliance Considerations for 2021

Operational and Compliance Considerations for 2021

By Brian Ford
Steps to Take Now Heading Into 2021 (Article 4 of 4)

Concluding our series for healthcare services companies with net revenue under $40 million, I highlight some operational and compliance considerations. In 2020, many companies adapted well by doing whatever it took to safely deliver patient care. To that end, some of the temporary solutions deployed are simply not sustainable without putting the organization at risk. 

Here are five things to consider, and some common observations and challenges we’re seeing with companies:

1. Are employees working remotely, and if so, how secure is that environment?

  • Employees are using personal computers that are also used by other family members. 

  • Companies issue work stations for home use, but what controls are in place for personal use?
  • How is accessing HIPAA-protected information controlled? As an example, can employees 
print patient information on home devices?

2. Are there any gaps in your risk management process?

  • New remote work settings highlight the importance for Cyber / Crime insurance.
  • Workers compensation policies need updated for changes in headcount and work setting.
    Some companies are missing discounts and refunds being offered.

3. Have you prepared a budget, and if so, does it have contingency plans for business interruptions?

  • Most common, management teams prepare static budgets assuming revenues return to ‘normal’ levels. As a result, there can be significant budget misses if further interruptions occur.
  • Other times we see run-rate budgets assuming status-quo based on recent operating results. Again, this doesn’t forecast growth and assumes that any upside will be done with current staffing levels.
  • How closely does your budget align headcount increases / reductions based on certain milestones?
  • For best practices, I recommend management teams have a budget for at least 3 scenarios, often referred to as “Best Case”, “Base Case” and “Down Case” budgets.

4. Is your staff staying current on changing documentation and coding requirements?

  • Most often, I see this topic come up around the new E&M documentation and coding requirements. Over the past year, training may have been deferred. What is the cost of not having regular coding and compliance training?

5. How comfortable are you with your liquidity going into the first quarter of 2021 – do you have visibility to your cash flow?

  • After a tough first half of 2020, many companies are ending the year with a better cash
    position. At the same time, I’m hearing companies say their bank is requiring a partial paydown of debt. Does your management team have the right tools in place to demonstrate the impact should your bank require a paydown of your debt? Simple tools such as tying in a 13-week cash flow forecast to your 2021 budget can help with these discussions.

If you’re a business owner, we encourage you to consider how your team is addressing the items we highlighted in this series. Does your team respond, rather than react, to a changing environment? Do you have a trusted advisor working inside the business, asking the right questions around the future health and growth of the Company?

We applaud our business owners and employees in Healthcare Services for working through a tumultuous year. Thank you for continuing to provide care in our communities, and we wish you continued success heading into 2021!

Brian Ford is a FocusCFO Area President based in Nashville, TN.


Carolinas News Release

Carolinas News Release

Carolinas News Release

Leading Fractional CFO Services Provider Expands Presence into the Carolinas

Metro Charlotte, Triad and Triangle Teams in Place

Columbus, OH − December 2, 2020 − FocusCFO announced today its growth into the Carolinas, offering fractional CFO Services to small and medium-sized businesses in the greater Charlotte, Triad (Greensboro, Winston-Salem and High Point) and Triangle (Raleigh, Durham and Chapel Hill) metropolitan areas. The company has 20 years’ experience helping entrepreneurs with cash flow, business risk, and scalable growth and value.

“I am honored to be associated with this leading organization and its many accomplished professionals,” said Michael Stier, Area President based in Charlotte. “I look forward to building relationships with the many small business owners and entrepreneurs in the Carolinas, along with the other organizations here who seek to help, mentor and support them,” he added.

Support is provided on a fractional basis, meaning clients get all the advantages of a full-time CFO, but at an affordable price, typically working 1 – 2 days/week. CFOs come with years of industry experience, seasoned and ready to apply best-practices, to make an impact as a trusted member of the management team.

“Especially during these difficult economic times, many small businesses are grappling with cash flow and operational constraints,” said Bill Goebel, Area President based in Greensboro. “FocusCFO has helped hundreds of businesses gain control and ease the stress for business owners,” he continued.

“This gives entrepreneurs running small and medium sized businesses a level of internal CFO support they never envisioned they would have access to,” said Brad Martyn, Founder and CEO. “We believe small business is the backbone of this nation’s economy and our entire team is focused on helping them grow and build value.”

The company said plans include further expansion in the Carolinas and Georgia over the next two years.

About FocusCFO:
Founded in 2001, FocusCFO is a leading onsite fractional CFO services provider, with more than 120 associates serving clients throughout Ohio, Michigan, Pennsylvania, Kentucky, Indiana, Tennessee, North Carolina, and South Carolina. FocusCFO works closely with small to medium sized businesses, helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. FocusCFO provides services on a fractional basis, meaning clients get all the advantages of a full-time, seasoned CFO under terms that are flexible, affordable and within each client’s budget. What really sets Focus CFO apart is their CFOs work exclusively onsite at the client’s office under a recurring schedule. Generally, engagements range from two days a month to several days per week, and many clients are in the $2 to 30 million revenue range when they initially engage with FocusCFO.


Changing Your Business Model

Changing Your Business Model

Changing Your Business Model

By Todd Peter

Do you understand your customer’s buying process?

20 years ago, the world was replete with a surge of new internet-based businesses, typically in the B2C space, all claiming and ready to change the world forever with exploitation of an anticipated overnight conversion of purchasing behavior from bricks and mortar-based retail to e-commerce. Many had no discernible revenue model and based their capital raises on clicks and eyeballs. The collapse of the NASDAQ index post 2000, bolstered the critics and naysayers. We now sit 20 years later with reports of Amazon continuing to devour retail sales, Walmart in a digital war against them, and social media platforms ingrained in our political processes.

The changes in retail, like most innovation cycles, have taken longer to reach broad adoption, However, the trends are now obvious. Let’s take a quick look at one of the most famous examples and look how the buying process can lead to insights that can change a business model.

Think of hiring a cab ride in 1998. In NYC for example, you first got to street level in whatever weather was present, risked your life stepping off the curb to gain visibility, waved furiously with the hope of attracting an open cab, gave your destination, prayed the cabbie would not take you on a circuitous double cost route, and debarked paying cash, hoping you would not be identified as a target for a wallet/purse snatch (you may note that I am not a native NYC denizen for whom all this is routine!). Today, from the lobby, you can enter your destination, get a price, lock in a driver, track their progress to you, step into your UBER, rate the driver, and never deal with cash. Every aspect of the buying process (determining availability, price, quality control, and paying the bill) has been made simpler and better for the Buyer.

Technology Has Changed Everything

I recently was lucky to attend a private panel discussion with 3 CEO’s of digital marketing firms discussing their insights on the buying behavior they are seeing in their clients’ industries (largely B2B). Two trends were most compelling. First, SEARCH is the beginning of everything. Sourcing, vendor identification, product research, user opinions, everything! This is true across almost every age demographic and for the younger generations SEARCH is virtually the only thing. Second, is buying cycle compression. The stage in the process that involved initial “vendor contact” traditionally occurred early when a buyer was gathering background information, but now when contact is initiated the buying process is well developed. This results in a compression of the cycle and limits the Seller’s ability to shape the process.

UBER’s radical change to the buying process was created by the technology of GPS enabled cell phones with enormous computing power coupled with digital payment technology. Amazon’s brilliant search technology (among its’ product offerings) coupled with a reordering of the logistics value chain makes going comparison shopping almost effortless.

Are You Ready?

Understanding how technology is changing the way your customers proceed through the buying process is critical to shaping your sales and marketing plans and more fundamentally to driving your business model. Remember that as the current generation of 20 – 30 year old’s transverse into the authorized decision makers in B2B commerce, their world is a search enabled super computer in their hand, powered with ever growing AI intelligence, and that they expect you to seamlessly deliver goods and services that they can evaluate, compare and purchase with a swipe of the finger. Are you ready?

Am I exaggerating to make a point –absolutely. Yes, I know B2B is more complicated and it is that complexity that creates the opportunity to rethink the buying process and make sure yours is the company capturing the sales, not your competitor, or an upstart. And not every business can follow the UBER model, that is not the point. Thinking through the process and how it is changing will lead to insight.

With the Covid pandemic, gradual trends are becoming torrents in B2C, and the idea of the face to face sales call in B2B may be taking a position on the endangered species list. The exact adaptations will evolve, but the compelling economics of new buying models will outlast the public health factors that have introduced change.

It is time to question exactly how your customers or potential customers are evolving their buying process and how your business model and processes fit in that model. Moreover, can you embrace change to jump the curve and create a competitive advantage?

Todd Peter is a FocusCFO Principal based in Cleveland.


KPIs to Drive Increased Volume and Profitability

KPIs to Drive Increased Volume and Profitability

KPIs to Drive Increased Volume and Profitability

By Brian Ford
Steps to Take Now Heading Into 2021 (Article 3 of 4)

Continuing our series for healthcare services companies with net revenue under $40 million, we look at the importance of having Key Performance Indicators (KPIs) for operators. In our first article, I highlighted Eight Considerations for Improving Cash Flow for Healthcare Services, followed by the importance of Understanding Multi-location Profitability. This article highlights specific KPIs to benchmark performance across the organization, from which the team can drive increased volume and profitability. Here are some commonly used KPIs that can be tailored for most healthcare services entities:

Leading KPIs

1. Total referrals
2. Total new patient appointments

Tracking referrals is often the first step in projecting future revenue, and it’s even more important to combine that data with new patient appointments. Too often, management teams do not realize how many referrals are lost because they are not properly tracked. Continuing with our examples, the management team quickly realized that most referrals were not converted to patient appointments. Further analysis helped the team identify capacity constraints, where certain providers were in a given location only a few days per month. As a result, new patients could not get scheduled in less than 30 days. After realizing the trends, the management team shifted the clinic and provider schedule, resulting in a higher conversion rate, better relationships with referring providers and most importantly, a better patient experience.

Lagging KPIs

It’s important to present lagging KPIs consistently on a Date of Service (DoS) basis. Too often, teams look at information not perfectly correlated, by comparing date of receipt cash collections or cash paid for wages, to date of service patient encounters. Due to timing of reimbursement or shifts in the payroll calendar (e.g. 3 pay month), the KPIs can be skewed and not presented consistently over time. Below are three KPIs critical to tracking revenue and profitability:

3. Net Revenue per Encounter – Calculated as [Collections, net of refunds and recoupments / Unique Patient Encounters]. Some companies might like to take this a step further, and look at Net Revenue / Encounter and Net Revenue / Billable Encounter. Looking at these KPIs on a DoS basis, the management team can measure what they actually earned, when the service was performed.

4. Total Procedures per Encounter – Calculated as [Total procedures performed (e.g. CPT codes charged) / unique patient encounters]. As management teams seek to understand changes in Net Revenue per Encounter, identifying shifts in the procedure mix can help. By way of example, the Net Revenue per Encounter was down meaningfully year over year. However, the management team noted no significant changes in contracted rates. Using this KPI, the team realized the case mix changed and the average Procedures per Encounter decreased from 2.1 to 1.7 due to a provider out on medical leave. As a result, the operations team again shifted the clinic schedule to restore a consistent volume mix at the clinic.

5. Direct wages per encounter – Calculated as [Wages + taxes for clinic staff (e.g. nurses, techs, scribes, etc.) / Unique patient encounters]. This KPI can be one of the most critical in influencing gross profit for many operators. Going back to our article, Understanding Multi-Location Profitability, the management team deployed clinic staff more efficiently using this KPI. At one under-performing clinic, the team realized staffing costs per encounter were 30% higher than other clinics in the same area. Staff with excess capacity were re-deployed to nearby locations to reduce overtime, resulting in margin improvement at multiple locations.
These are just a few examples of how our team works with healthcare service companies to (i) understand the historical performance, (ii) develop the right, applicable KPI from which the team can manage, and (iii) collaborate across the organization to help drive growth.

Next week, we’ll highlight Operational and Compliance Considerations for 2021 and touch on some key topics for working remotely.

Brian Ford is a FocusCFO Area President based in Nashville, TN.


Understanding Multi-Location Profitability

Understanding Multi-Location Profitability

Understanding Multi-Location Profitability

By Brian Ford


Steps to Take Now Heading Into 2021 (Article 2 of 4)

Continuing our series for healthcare services companies with net revenue under $40 million, we look at the importance of clear reporting around multi-location operations. Too often, companies do not have the infrastructure to understand profitability by location, but rather look at financial results in total. Overtime, this can lead to underperforming clinics or service offerings, resulting in a drag on overall profitability. By having the right resources in place, some benefits your business may realize include:

1. Visibility into the direct gross profit of the location and/or service line.

2. Appropriately capturing the costs of administrative staff, allowing management to see the true overhead burden. Too often, we see such costs reported where the employee physically works rather than assigned to their respective department.

3. Understanding the fixed costs of each location, allowing management to enter into more efficient office leases.

4. Analyzing whether clinics are truly underperforming, or does it lead to higher acuity visits at another location. It’s important to see how each location and/or service may be interdependent.

5. Aligning compensation agreements with the overall volume and efficiency of the operations.

In a short example, we look at a practice that started with one clinic location, and after several years of organic growth, had four locations in the same geographic market. The Owner did a great job launching new providers into the market, and expanding to different sub-markets within the larger metro area. However, much of the overhead and administrative functions remained in the original location. The management team attempted to allocate overhead, but it largely distorted the true burden for each clinic, thereby understating the stand-alone contribution margin for each location. With improved visibility into clinic operations and integrated financial reporting, the Owner made some great operational changes that improved profitability. Just to highlight some of the Owner’s accomplishment’s: (i) transitioned administrative employees (such as HR and payroll) out of expensive medical office space into an administrative office, while amending the medical office lease for much less square footage and (ii) created efficiencies in staffing by deploying underutilized staff to needs at other clinics.

Good strategic decisions often require the right financial reporting. If you know of a healthcare services company that could benefit from improved visibility into operations, please reach out.

Next Wednesday we’ll continue the series where I’ll highlight Key Metrics to Drive Increased Volume and Profitability. Whether it’s a single location or multi-clinic operations, having a set of consistent, key metrics provides clear data from which the team can manage.

Brian Ford is a FocusCFO Area President based in Nashville, TN.




Metrics for Evaluating Non-Profit Performance

Non-profit organizations serve an important role in our society, providing services that for- profit organizations are either not interested in providing or can’t provide profitably. These non-profit organizations are extremely diverse, ranging from charitable socially-focused organizations to member- based groups.

Increasingly, non-profits are developing performance measurement systems that allow them to evaluate their progress toward achieving their missions. Metrics focused on how organizational activities are fulfilling the non-profit’s mission combined with financial performance indicators allow entities to understand how effectively they are serving their communities. The way these organizations execute their mission is very different from the execution of for-profit entities, but there are common approaches to performance measurement that can help organizations to manage their operations and to sustain their ability to serve. Here are three areas of focus for measuring non-profit execution.

Activity Effectiveness

Efficiently operating a non-profit is essential. Just as in any business, efficient operations generate additional cash flow for the organization, but in a non-profit it also demonstrates effectiveness to potential non-profit “investors” (donors, grantors and/or members) which can result in increased funding. Operational efficiency measurements vary for different types of organizations, but the metrics should measure progress toward the mission and the effectiveness of programs implemented. Activities to be measured should include a measure of productivity (mission-related outputs such as constituents served divided by inputs such as staff or dollars). Other appropriate measures of performance for organizations may include staff effectiveness, the hiring and retention of skilled staff, increased donations from current donors, or increased donor loyalty and retention.

To determine organizational financial efficiency, non-profits should analyze several standard performance categories including:

• Program Efficiency (program expenses divided by total operational expenses)
• Administrative Efficiency (administrative expenses divided by total operating expenses)
• Operational Sustainability (operating revenue as a percentage of costs – which measures the
net dollars the non-profit spends providing aid and support to the community)
• Fundraising Efficiency (fundraising expenses divided by total operating expenses)

The general consensus is that non-profits should spend at least 65% of their total expenses on program activities. Many believe that organizations spending less than a third of their budget on program expenses are ineffective. “Best of Class” organizations often spend 75% or more on program activities. Typically, efficient non-profits are expected to spend 15% or less on administrative expenses and 10% or less on fundraising expenses. These standards can change depending on the non-profit’s business segment. For instance, museums typically have above- average administration costs as compared to other types of charities because of the costs to maintain their facilities and collections.

Utilizing and Expanding Capacity

Effective non-profits are successful at mobilizing their resources. Organizations should measure their capacity utilization and their ability to grow capacity. Depending on their cause, that may require measuring efforts to increase donations from current donors, expand the current donor base, pursue funding from public sector agencies and government, increase market share, grow the number of volunteers, or recruit high-impact board members.

From a financial measurement perspective, non-profits should track their revenue growth compared to similar organizations, program expense growth compared to others in their industry segment, and their working capital to expense ratio. Comparing revenue and expense growth to others in a non- profit’s industry segment allows the performance metrics to be adjusted for economic trends. The working capital to expense ratio is important in determining how long (in years) a non-profit can sustain its level of spending using only its net unrestricted assets.

When growing capacity, it is important that the non-profit convince donors to fund infrastructure instead of only program services. Fundraising is critical to capacity expansion, and infrastructure is needed to support that capacity.

Fundraising Effectiveness (fundraising expenses divided by the total funds the organization receives as a result of that effort) is an important financial measure. “Best of Class” non-profits typically have fundraising expenses that are less than 35% of related funds raised. Although the expected ratio differs significantly by industry segment, generally non-profits should work to maintain a working capital to expense ratio greater than 1. Donor Dependency (operational surplus subtracted from donations, divided by donations) is another common financial capacity measure.

Long-term Objectives and Planning

As opposed to for-profit organizations where profitability and increasing owner value are the goals, non-profits are measured by their ability to fulfill their mission. Fulfilling the organization’s mission may require incurring financial deficits while providing more services to constituents in recessionary times. Surpluses may be managed in other economic situations. As a result, the long-term focus of a non-profit should be on sustainability.

Measuring progress toward the mission and the non-profit’s long-term objectives should drive high- level organizational focus. As a result, it is especially important that non-profits maintain strategic plans typically for three-year intervals. Cultivating a “sustainability” culture among board members, staff, donors and grantors is essential so that the organization can be a reliable service provider when recession comes. A common metric in measuring compliance with the non-profit’s strategic plan is to track the percentage of operating priorities that align with the organization’s mission.

From a financial perspective, three-year financial models and their related annual budgets are very important to long-term objectives and planning. Plans that include deficits are acceptable, but non- profits should not outspend their means. When an organization runs a combined deficit over time, its sustainability is suspect and it runs the risk of not fulfilling its mission. As a result, financial models should include combined surpluses over time and the establishment of cash and investment reserves for lean stretches. The working capital to total expense ratio discussed above is an important measure of long-term performance. Additionally, a common metric for successful non-profits is the ratio of the organization’s net unrestricted assets to annual expenses. It should be about three times the larger of the prior year’s expenses or next year’s budgeted expenses. It is important, however, to avoid accumulating assets beyond that point and tying up funds that could be used for current program activities.

Non-profits play an essential role in our society. In order to fulfill their vital assignment, it is important that they sustain their existence by performing at the appropriate level. Managing to key performance indicators like those discussed above will significantly help non-profits to achieve their mission.