Budgeting to Advance Community Opportunities Paul Houston, CPA

Budgeting format for existing operations There are multiple spreadsheets for major expense categories. Revenue is developed in a separate spreadsheet Budget is formatted to capture all of the detail from the other tabs Assumptions is a summary of significant assumptions Salaries is a list by staff name, salary and hours worked per week Input is the majority of the expense detail Annual allocation spreads revenue and expenses by month

Why move from Facility to Community Based programs Out of the Workshop https://www.youtube.com/watch?v=dWeDOTHK9s4 Why Work Matters https://www.youtube.com/watch?v=LJrBBOr2DAU

Mission Statement Strengthen your organization’s capacity to expand community integrated services by learning how to budget for new programs and shift resources from the facility to the community What data elements are needed to develop a plan and a budget What are the key financial considerations for sustaining a community-based program? What process can organizations use to develop realistic revenue projections?

Developing a Plan for Implementation This is the first step in the process. A detailed data driven plan to move individuals into the Community from a Facility program is necessary to start the budgeting process. Once the initial plan is developed, budget estimates can be developed The budgeting process will continue to interface with the operational plan as data on the process changes. In my experience an initial budget may be modified multiple times as discussions with the operational team result in changes in numbers of individuals, staffing and rates.

Data Elements There are generic data elements Census and utilization Eligibility of individuals Staffing ratios Staffing cost per hour Other direct costs of the program Indirect cost allocated to the program

What are some additional issues If operating under a milestone system How many staff hours does it take to achieve the milestone What is the complexity of the individual’s needs How many individuals are eligible for the services What other new non-staffing expenses will be incurred How should other expenses be shared with existing programs

What are some additional issues (continued) If you are operating under a fee for service arrangement How many staff hours will each individual need What is the complexity of the individual’s needs How many individuals are eligible for the services Can the program staff work at least 70% at face to face interaction with their individuals Is there a cap for each individual’s revenue on a monthly or annual basis

Issues to think about with Transition The time frame for the implementation of the new program The time frame for the transition process to an ongoing program Eligibility of the individuals to participate in a community program New versus existing costs Cash needed to support the new program Training, orientation and Policy and Procedures changes Resistance to change by individual, family, staff and others Difference between Community and Facility based staff

Examples of Implementation Worksheets Cash Flow assumptions Cash Flow worksheet Staffing Cost per hour Milestone Budget Estimates Budget Summary The associated work sheets are in a separate excel file which will be send to attendees at their request.

Fee for Service is billed at $45 per hour. Cash Flow Assumptions Explanation Cash Inflows Milestone May want to have separate rows for each milestone. The payment would be received upon completion of the milestone by 90 days Fee for Service There is a 90 day delay in payments. Finish month bill and receive payments within 60 days In this example, starting at 20% of direct time in 2nd month and increasing by 12.5% by month to cap at 70% in sixth month, However billing will start at end of 2nd month with first collection in fifth month' Fee for Service is billed at $45 per hour. Grants Cash Inflow upon receipt There is often grant dollars available from state agencies for new programs Estimated a $25,000 grant Donations Based on experience Cash Outflows Salaries/Benefits Staff are paid every two weeks and benefits are paid with month. There will be a period prior to service delivery for hiring and training staff In the example, the Program Manager and the direct staff are hired during the first month by HR and starts within two weeks. Administrative support is added in third month Program Director at $36,000 is allocated at 40% to this program and direct staff at $15 per hour ($2,600 per month) Benefits are accrued at 20% Second direct staff member starts when first achieves 70% utilization Facilities/Utilities Paid 30 days after expensed. Reduce expense by depreciation and other non-cash expenses This includes office space allocation, cell phone reimbursement' Transportation As this is a wide spread area, reimbursement for personal mileage may be expected Please note that employees might have additional auto insurance requirements if they transport individuals Other Program Paid 30 days after expensed This includes office supplies, computer, and other standard staff costs Overhead Charged at 10%, Paid 30 days after expensed This is the charge for administration-HR, Accounting, IT and other non-related program expenses'

Sample Company Cash Flow 2019 Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Revenue Milestone Fee for Service 1,557 2,530 3,503 4,476 5,450 7,000 8,000 9,000 10,000 Grants 25,000 Donations   Total Revenue - Salaries Program Salaries-Mgmt. 500 1,250 Program Salaries-Direct 1,200 2,600 5,200 Total Salaries 1,700 3,850 6,450 Employee Benefits 20.0% 340 770 1,290 Total Salaries/Benefits 2,040 4,620 7,740 Plant/Facilities/Utilities 300 Total Transportation 125 150 200 Other Program Total Direct Expenses 4,920 5,245 5,270 5,320 8,440 Administrative Overhead 10.00% 204 492 525 527 532 844 Total Operating Outflow 2,244 5,412 5,770 5,797 5,852 9,284 Cash Inflow/(Outflow) 22,756 (5,412) (5,770) (4,240) (3,267) (2,349) (1,376) (3,835) (2,285) (1,285) (285) 716 Beginning Cash 17,344 11,575 5,805 1,565 (1,702) (4,051) (5,426) (9,261) (13,095) (15,380) (16,664) (16,949) Ending Cash (16,233)

Estimate of Milestone Revenue per Hour 2019 Sample Company Estimate of Milestone Revenue per Hour 2019 Service Rate Time Months Revenue Staff Hours Career Profile/Job Development $ 950.00 (based on number of hours Individual works) $ 1,500.00 $ 1,500.00 10 $ 2,100.00 Job Development Job and Task Analysis $ 150.00 one time per Individual $ 150.00 5 One time per Individual Systematic Instruction $ 800.00 Month 6 $ 4,800.00 156 (Job coaching) Transition Individual to Long Term Supports within 6 months $ 1,200.00 Upon completion of transition $ 1,200.00 Total Revenue and Hours of Staff Time $ 7,650.00 171 Cost per Staff Hour 45 Costs 7,695.00 Surplus/(Loss) (45)

Ratio to Direct Staff Salary and Benefits Sample Company Average Cost per Hour 2019 $ Ratio to Direct Staff Salary and Benefits Staff Factor $ 15.00 Benefits % $ 3.00 20.00% Allocation of other staff salaries and benefits $ 7.20 40.00% Other Direct Costs as % of Direct Salary and Benefits $ 3.60 Indirect Costs as % Total Direct Costs $ 2.88 10.00% Total Staff Costs per Hour $ 31.68 Staff average utilization 70.00% By experience, staff must work 70% of direct billable service hours to break even Allocated Salary per Hour $ 45.00 This is a calculation of minimum fee for service rate to break even

Sample Community Programs Fiscal Year Ending: September 30, 2019 Budget OPERATING REVENUE & SUPPORT FY 2019 Fees/Tuition 439,372 Contributions - Public Grants Other Income TOTAL OPERATING REVENUE & SUPPORT OPERATING EXPENSES Program Salaries/Benefits 199,598 Plant/Facilities/Utilities 39,160 Vehicles/Transportation Other Program Cost 88,998 Total Program Cost 327,755 Operating Surplus/(Deficit) before Home Office 111,617 Operating Margin 25.40% Home Office Costs Allocated to Programs 79,921 TOTAL OPERATING EXPENSES 407,677 NET INCOME/(LOSS) FROM OPERATIONS 31,695 Margin after Home Office 7.21%

Community Programs Moving from Facility Based services to Community service requires the development of at least two new services Community Day-a program for the individual in volunteer sites in her/his local community. This provides some community integration. Supported Employment-a program where the individual works and gets paid as a regular employee. SE will be the subject of the work papers but as both services are necessary for the individual, the plan should include both services but will require two separate budgets.

What is a Budget It is an estimate of operational performance recorded in the organization’s financial system With a new program, a budget includes estimates for a new program with no prior history It becomes a tool for the team to measure individual and organizational goals and how to support those goals financially With no history, it is a best guess at performance

Who prepares and uses the Budget It is a collaborative process shared by program managers, organization management and finance While the accountant prepares the numbers, the census, rates, staffing, attendance, milestone timeframes are developed and/or modified by the operational staff The final budget is a negotiation between operations and finance to estimate achievable goals All of the budget preparers use the budget as does the Board, banks and other appropriate organizations

Creating the Transition Plan The goal is that all of the activities would be conducted 100% in the community Staff would accompany individuals to pre-planned activities in the community Staff ratios would not exceed 1 to 3 Jobs would be chosen by the individual after discussion with the team Jobs would be close to the individual’s home to reduce commute time Per SJCS presentation to 2017 Missouri APSE conference

Factors for Establishing a Time Frame Establishing a program Rate negotiations Hiring a Program Director Hiring staff Training staff Securing locations for community jobs and volunteering Policies and Procedures

Several Questions to be answered prior to Implementation Has the Payer provided us with assurances that the conversion from facility to community based will be met with support from the payer. This includes acceptance of adequate rates Are the appropriate agencies willing to transition individuals to the new programs Does the Payer have any specific policies and procedures for community programs Will the appropriate agencies need to perform licensing reviews prior to admission of individuals into the program

New Costs prior to Transition Staffing ratios Current staffing patterns Calculate number of needed initial new staff Estimate time to hire and train staff Are there other elements needed for this program

Training Staff and Other Direct Staff Costs What are the requirements for the program What are the regulatory agency’s requirements for training new staff What are your program requirements As part of the opening of the program, what training requirements are added to existing procedures Estimate time frame for each of the above Do the staff need to be reimbursed for transporting individuals in their private vehicles Do the staff need cell phone reimbursement and computers for data tracking software Does the organization have data collection tools

Transition Period to Ongoing Program What is your estimate of the timing of transitioning enough individuals to the Community Programs to consider it a operating program It was the experience of my prior program that transitioning 60+ individuals from a Facility to totally Community based programs can take more than two years

Transition Issues Review the assumptions against the actual activity Refine revenue and service units as your staff provides services Develop tools for managing the inflow of data Develop a process to capture non-financial data elements to use for periodic reviews by management and staff.

Links to TN DIDD Employment First Videos Out of the Workshop https://www.youtube.com/watch?v=dWeDOTHK9s4 Employment on Campus at UT Martin  https://www.facebook.com/tn.didd/videos/1335372803217525/ Why Work Matters https://www.youtube.com/watch?v=LJrBBOr2DAU More Than a Job https://www.youtube.com/watch?v=R1uojkVB5II&feature=youtu.be Per SJCS presentation to 2017 Missouri APSE conference

Additional Resources 2016 Expect Employment Report http://www.tennesseeworks.org/wp- content/uploads/2016_Expect_Employment_Report.pdf When the Workshop Closes  http://www.tennesseeworks.org/when-the-sheltered-workshop-closes/ Real Work For Real Wages Boosts Real Self-Sufficiency http://www.tennesseeworks.org/real-work-for-real-wages-boosts-real- self-sufficiency/ Per SJCS presentation to 2017 Missouri APSE conference

Final thoughts on Transition Budgets There are an seemingly impossible task when developing a new program. However, the development of a transition budget is the first step in developing a team wide approach to implementing a new program. The process itself brought the team into a place where operations could speak to finance and both understood the issues. It was not easy but from my perspective it made me a better CFO and officer of the non-profit

Final Thoughts on Operational Budgeting A budget is a multi-use tool. The management team can use it to develop projections throughout the year to measure operational performance as well as financial performance. At SJCS, we used the budget process and the related data elements to not only review performance but look to allocate resources to assist those programs performing below budget. We also used a medical records package designed for our industry to collect the necessary data elements for budgets, billing and state documentation requirements.

Contact Information Paul F Houston pfhouston@gmail.com (202)413-6842