The top concern these days for senior living CFOs is getting the budget in order. There have always been two ways to do that—either raise revenue or cut expenses. The housing market and general economy have made raising revenue very challenging. Hence, most CFOs have taken a knife to the budget.
One very effective method for cutting expenses is to participate in a group purchasing organization (GPO) or shared services organization. Enhanced service levels can result from preferred vendor agreements.
One example is insurance, which is a big expense for CCRCs and others. Innovative CFOs have created trusts to jointly fund group retention in excess of their respective deductibles. This reduces premium outlays for a larger pool of risk.
Another example is food service. One noted community had a history of losing money in food service. It was able to turn the operation around by using a group purchasing vendor.
The vendor helped save more than $1 million a year. This helped the CCRC totally alter its balance sheet and ultimately get bank financing for expansion.
Marsha Cayton, administrator for Seven Acres Jewish Senior Care Services in Houston, is a big fan of group purchasing. “There is simply not enough time, volume or manpower to negotiate with vendors about freight costs, annual increases, or to conduct the vendor audit,” says Cayton, a board member for the Texas Association of Homes and Services for the Aging’s Senior Communities Purchasing Connection.
“Group purchasing is the way to go, as it provides every member with buying power, savings and a legal arrangement to conduct purchases,” she adds.
Joining a GPO is free and can help nonprofits in particular survive a recession. The benefits just keep on giving. In fact, there has never been a better time for the CEO/CFO to be proactive and cut expenses by joining a group purchasing plan.
William C. Fisher is president of Investment Advisory Group, LLC, a business development company partnering with some of America’s leading financial companies to provide independent financial services to nonprofit organizations.