Episode 104: Building Financial Resiliency & Sustainability

Intro: [00:00:05] Welcome to Senior Living Visionaries, a podcast for senior living leaders who are looking to stay ahead of the curve in the industry. On this show, we feature leaders and innovators in senior living who are pushing the boundaries and creating new effective services and solutions. And now, let’s settle in as host, Jennifer Drago, connects us with today’s guests.

Jennifer Drago: [00:00:31] Hi. Welcome to Senior Living Visionaries broadcasting live from the Phoenix Business RadioX Studio, where we showcase leaders and innovators in the field of senior living. I’m your host, Jennifer Drago. I’m a strategy consultant and the CEO of Peak to Profit.

Jennifer Drago: [00:00:47] And I’m really excited about today’s guest, Larry Bradshaw, who’s a financial consultant these days, but a retired CEO and former CFO who’s worked in the senior living industry for over 40 years. And I’m going to introduce him fully here in just a second, but one of the things I’m really interested in – and I spoke to Larry very early on when I was really talking about bringing this podcast to life – was really helping our industry become more financially resilient and more sustainable in the long term.

Jennifer Drago: [00:01:21] And with Larry’s background and his expertise, he’s really helping organizations do that. Now, he is retired, so he doesn’t want to work all the time, but we’re going to hope to extract some of these goodies out of his brain today and learn what we can do as senior living providers and executives to remain financially resilient and keep that strength behind us in really challenging times.

Jennifer Drago: [00:01:45] So, as I mentioned, Larry has more than 40 years of experience in the nonprofit senior living industry. He started as a CFO and had a really long run with Asbury Communities, where he started as a CFO and Executive Vice-President for Strategic Growth, and then took on the role for the Asbury Group, which I think does consulting for continuing care retirement communities. He then went on to consult on his own, but then shortly returned to National Lutheran Communities and Services as the president and CEO, where he was from 2009 to the time that he retired in 2021. So, Larry has a wealth of knowledge that he can impart to us today. And I’m just so excited to welcome you, Larry.

Larry Bradshaw: [00:02:36] Thank you, Jennifer. Glad to be here.

Jennifer Drago: [00:02:38] You bet. So, you know, I mentioned we really want to strengthen this industry and I know you’ve been working in it a long time, that’s been part of, I’m sure, your passion and purpose is helping to create the next level of leaders and continue so that your legacy is strong and you have people coming in behind you that are leading the organization and focusing on the things that you would want them to.

Jennifer Drago: [00:03:02] And so, in that vein, I’m going to ask my first question about the type of consulting that you brought in to do now with organizations. What are some reasons that organizations bring you on or seek your type of assistance in this day and age?

Larry Bradshaw: [00:03:17] Well, thank you, Jennifer. It’s an interesting time, as you know, in senior living, I mean, coming out of the pandemic. And as you said, I am retired, but I do get called in and asked a few questions. And in my experience in the last 18 months since I retired have really been in the areas of development.

Larry Bradshaw: [00:03:38] I’ve had a community look to me to help them with some development of both expansion opportunities and also new campuses. And that was really around looking at the feasibility of doing something, especially in a really difficult environment in certain areas around land entitlements and project entitlements and really getting through a lot of the red tape that communities are doing. I’ve done a few of those.

Larry Bradshaw: [00:04:05] I’ve actually done a little bit of secret shopping for some organizations going in and pretending that I’m looking – pretending may not be the right word, but pretending to look at those. I’m looking from the eyes of a consumer and then going back to those communities and saying, “Well, here’s some things I saw or some things that weren’t being done.” And I think, again, during the pandemic, a lot of communities, the occupancy dropped so low, there was very little kind of marketing or lead generation because people just were staying at home.

Larry Bradshaw: [00:04:40] So, I think some of the organizations that I’ve talked to have gotten a little bit out of practice on how they contact people, how they follow up and all those things. And so, just some of the basic blocking and tackling, if you will, on some of those developmental and marketing issues.

Larry Bradshaw: [00:04:55] But I think primarily what I give some advice on or take a look at is really financial stability in the organizations and really kind of what to look at. I think the industry has come so far in the last 40 years, but there’s still so many nuances, especially in senior living when it comes to entrance fees and it comes to some of those accounting issues that are not necessarily easy to understand, even for people who do it all the time, but especially for people trying to sell the product or get into the product.

Larry Bradshaw: [00:05:30] So, a lot of financial nuances. I take a look at a lot of financial statements and just kind of give some thoughts on. And it’s funny how sometimes people will ask me, “Well, I think we’re doing pretty well.” And I’ll look at their statements and say, “I think you’re doing some pretty good things,” but either I see vulnerability points or I see opportunities to really gain even more traction. And so, I think I would say it’s a little bit variety. There’s a variety of things I look at, but primarily it’s around the financial stability of the organization.

Jennifer Drago: [00:06:05] And that’s so important. And one of the things that we talked about as we were prepping for this call is I think we would love to see providers reach out and seek expertise in this area far ahead of when they might need it. So, even when things are seemingly good, maybe occupancy is almost recovered to the pre-pandemic levels, but you’re still struggling a little bit financially. That’s a great time to to seek the guidance of an expert and say, “Hey, take a look and see what we can do differently.”

Jennifer Drago: [00:06:38] We’re going to get into some of the factors, some of the things that you look at, but one of the things I take away from talking to you is that each organization is so unique, and their financial picture and the sustainability and stability is really a puzzle. You’re kind of mixing and matching a number of elements to optimize how that organization can perform financially, even in the midst of all of the things that are hitting our industry right now, staffing shortages, inflationary pressures, you name it.

Larry Bradshaw: [00:07:10] I think you’re puzzle analogy is right on track, Jennifer. I think one of maybe the positive things that have come out of the pandemic – I’m not quite sure. I don’t think we’ve gone far enough in to see if it’s really positive or not – there were some statistics several years ago that over 65 percent of the leaders in senior living were going to be leaving through retirement, and we’re kind of in that period of time now. And I’m one of those individuals.

Larry Bradshaw: [00:07:36] But I think that maybe the good part of that coming out of the pandemic is some of the new leadership that’s coming in with some new ideas and they’re not handcuffed or biased by the way things have always been done, which I think could be a positive moving forward.

Jennifer Drago: [00:07:51] I agree. I agree. And on the flip side of that, they may have great ideas which we need in this industry. We need disruptors. We need innovators. But matching those ideas with some financial expertise is really important. We got to make sure that we do this in a very smart way.

Larry Bradshaw: [00:08:10] Not to be at all negative, but I think one of the challenges that is very subtle in this industry in trying to be innovative and trying to illuminate some of the things we’re talking about today is really some of the regulators, the regulations in different states. They’ve come through the pandemic and they’ve really changed also. They weren’t always as innovative and as quickly as a provider we wanted them to be. But I’m concerned that maybe they’ve gotten a little farther behind because of the pandemic and because of, you know, all the other focus of legislation and those type of things. We’ll see how that plays out. But I think that could be a factor in the future, too.

Jennifer Drago: [00:08:48] Yeah. Good point. Good point. So, in the last 18 months, as you’ve been brought in, you know, this is really post-pandemic, what kinds of trends are you seeing when it comes to financial stability? What things are you seeing that you point out more and more maybe than you did in the past?

Larry Bradshaw: [00:09:05] Well, certainly occupancy has to be at the top of the list because if you go through and look, the organizations, I think, that are really doing well out of the pandemic have increased their independent living occupancy back to pre-pandemic levels. But the health care side, assisted living, memory care, skilled nursing are significantly lower. While that in itself is a pretty good indicator, I think the trends of staffing has gone the other direction. They’ve become more expensive, harder people to staff.

Larry Bradshaw: [00:09:38] And if you talk to HR professionals, I heard this when we were in the pandemic until the end of 2021, so kind of in the throes of it, but we had so many individuals who would sign up for interviews and they would just never show up. And it would just be very, very difficult to get people in.

Larry Bradshaw: [00:10:03] So, as I look at financial stability, I really have focused on a couple things. One is certainly occupancy, but two is occupancy mix, especially in skilled nursing and assisted living, where you’re in a Type A or life care community, where you could have a lot of individuals coming out of independent living, going into skilled nursing, but they’re usually at pretty deep discounted rates. So, that could affect your revenue stream. So, I think what I’ve really looked at is what’s your occupancy, what’s your mix. And I think that’s really important to look there.

Larry Bradshaw: [00:10:33] And, again, depending on the contract, How dependent are you on entrance fees? Are the entrance fees refundable? If they are refundable, a lot of contracts will allow individuals to leave their independent living apartment, but go to skilled nursing or assisted living without paying the refund and entrance fees because the contract stipulates you don’t pay it until they leave the community.

Larry Bradshaw: [00:10:57] You get a new entrance fee in, but you’re building this liability and skilled nursing. All of a sudden, you’ve got $8 or 10 million of refunds sitting in health care. And if for some reason you’ve run out of inventory or you’re very highly occupied, all of a sudden, where’s that money going to come from when it’s time to pay it out? So, I think that’s an area I’ve been looking at a lot.

Larry Bradshaw: [00:11:20] You know, one of the organizations that I worked with, we’ve actually begun to put that on our financial statements so we can actually see what that number is and that liability is, because while it’s on the balance sheet as a deferred revenue, until it is very specific to health care stability, it can just be lost in the numbers. So, if it’s not distinguished on the financial statements, certainly as part of the management report, I think, has been something to be useful of.

Larry Bradshaw: [00:11:49] We look a lot at debt service coverage ratios. Usually, that’s the covenant related to debt. And I’ve have begun to focus more on the debt service coverage without entrance fees versus with entrance fees, because certainly you can be in line with your covenants. But I’d like to see that ratio of debt service coverage without entrance fees continue to rise because that reduces your reliance, of course, on entrance fees, which I think is really important. And we’ve seen how important it is. I mean, if we have a heavy reliance of entrance fees and occupancy goes down due to something like the pandemic, it’s just hard to get that back.

Larry Bradshaw: [00:12:26] So, my focus has really been more on focus on improving operations and less reliance on entrance fees, making sure your capital expenditures are adequate, because what you can’t afford in this environment is to have a tired facility. And, of course, liquidity is also an important area. So, those are kind of the five or six areas that I look at. And if one of those looks like it’s kind of going the wrong direction, it’s time to dig a little deeper.

Jennifer Drago: [00:12:52] Yeah. I love what you brought up about entrance fees and how they play into kind of your occupancy mix, the refundability component, really the mix of contracts that you have in your organization. And you’ve brought up some points that I really haven’t heard expressed by many consultants that work in this industry, which is, if you’re not keeping an eye on the refunds that you need to issue and kind of how the entrance fees play into your overall financial picture, you really run the risk of having a big surprise in the future. And I love your idea of kind of always having an eye on those numbers and knowing where you’re at so that you can be planning accordingly.

Larry Bradshaw: [00:13:40] Yeah. I think one of the things we tend to look at in this industry – I mean, I could paint you a scenario. I haven’t thought about this in advance, Jennifer, so I hope it doesn’t mess up. But if a project came to you with 98 percent occupancy in independent living and you had entrance fees, and your debt service coverage ratio was 1.5 times, which is all very strong, in that scenario, 98 percent you’re functionally fully occupied. Because by the time people go out of the project and then you have to turn the unit over, you’re there.

Larry Bradshaw: [00:14:22] But let’s say that you’ve built up that refund liability in health care and maybe it’s $10 or 15 million, depending on your market, how big it is, well, all of a sudden those people start needing their refunds out of health care, you don’t have any units to resell. So, while, yes, the occupancy is great and it’s strong, the flip side of that is if it’s so strong that you cannot pay some of those refunds, I think that’s problematic and it really could affect your liquidity. And when you start paying those refunds, it affects your debt service coverage. And you don’t have entrance fee refunds coming in to replace them because they’ve already been replaced.

Jennifer Drago: [00:14:56] Yeah. Good point. Good point. You know, one of the things, I just interviewed, Brad Paulus from Continuing Care Actuaries on this podcast.

Larry Bradshaw: [00:15:04] That’s a good guy. I like him.

Jennifer Drago: [00:15:05] Yeah. He sure is. And when I was working for a provider, I had the opportunity to work with Brad and really think about, “Oh. What do different benefit structures look like? How can we morph this plan? Or is this contract still appropriate given what the next generation of residents is going to want?” And that’s one of the things that Actuaries, I think, are really good at doing is kind of strategic visioning. And I’m not sure all providers kind of take advantage of that.

Jennifer Drago: [00:15:36] And so, what you’re describing back to the contracts and the contract mix, I think you could really have some great conversations with your actuary, and I think that could be a key takeaway from this podcast as listeners are listening, is, if you haven’t taken a look at your contracts in a while or thought about how they might need to change or how that mix might need to change, could be a really good time to do it.

Jennifer Drago: [00:16:01] And the other thing that Brad was sharing is a lot of providers are taking advantage of the shift in utilization. Post-pandemic, he reported to us that skilled nursing facility utilization is down, that residents are really resisting more than ever going into skilled nursing. Whereas, in prior years it might have been 18 to 22 percent. Now, we’re seeing 15 to 18 percent of residents actually utilize that service, you know, short term or long term, depending on what’s going on. And so, providers are taking advantage of that and maybe adding in home care benefits where we could actually provide care, but in a different location, which is, again, truly what residents want.

Jennifer Drago: [00:16:48] Did you ever work with actuaries in that regard to kind of strategically vision —

Larry Bradshaw: [00:16:53] Well, it’s funny that you mentioned Brad, because in my former job we did work with his company, and I have a lot of respect for what he does. And prior to me leaving National Lutheran, my former job, we actually were developing a project that we created. And I’m not sure this is done a whole lot of places. We actually created a project that had both Type A and Type C contracts. And we did that for marketing reasons for a couple, because we did have some people that liked the life care benefits, but others who had a lot of long term care insurance didn’t want to pay the premium. So, we actually generated the project will have Type A and Type C contracts, but we did cap them at a certain level.

Larry Bradshaw: [00:17:36] And I remember the conversations that we had with Brad and his team about, well, where do we cap these at? I mean, how many do we do for Type A? How many do we do for Type C? And it’s an interesting conversation, but I think, also, the actuarial models for years – and I’ve said this to other people – from my experience always look to have higher or bigger skilled nursing facilities than what was really needed.

Larry Bradshaw: [00:18:09] I go back to my early years back in the 1990s in another organization and we built a community which had a 40-bed skilled nursing community. And that didn’t fill up for 15 years because people wanted to stay out of there. So, I have kind of felt like a little bit our industry has shot ourselves in the foot a little bit about the number of skilled nursing beds that we have built.

Larry Bradshaw: [00:18:36] At National Lutheran, my former job, when I got there, they had 300-bed skilled nursing facility and it was huge. And we dropped it to 160, redeveloped the entire skilled nursing. And, frankly, if I would have had to do it again, I probably would have said instead of 160, let’s do 60, because it’s just hard to fill and now it’s hard to staff.

Larry Bradshaw: [00:18:58] So, I think the industry is paying heed to what needs to be done. And I’m really glad to hear that you had Brad on this because he’s a very innovative person. But I think we’ve got to figure out a way to reinvent and, if you will, right-size some of these skilled nursing and health care beds because, to your point with homecare and other such things.

Larry Bradshaw: [00:19:21] And at some point the Medicaid model is going to get to the point where I think – and I don’t know when it’s going to happen. I don’t know if it’ll ever happen – the money could actually follow individuals versus follow communities. And then, you’ll have a really interesting situation if Medicaid and the states and funding cap off certain levels to individuals and then, all of a sudden, they’ve got to use those dollars the best way they can. And so, that’s going to be at the lower cost. So, it’s an interesting time, but I’m glad to hear that you had Brad on.

Jennifer Drago: [00:19:52] Well, and the other thing – and I don’t know if you’ve seen this in other areas or other states, I know not all states are as flexible – here in Arizona before I left industry, we had three life plan communities in the state that had decommissioned their SNF beds altogether and had kind of beefed up their assisted living, whether added beds to that, added acuity levels, so they had high acuity AL. And what they found was they could adequately take care of 99.5 percent of every residents’ needs in the high acuity AL, and where they needed to outsource, and they did that with strategic partners was for short term rehab or for the very few cases that needed a true level of SNF care. So, are you seeing that in other areas of the country?

Larry Bradshaw: [00:20:45] Yeah, I am. People are just looking to right-size skilled nursing or decommission. I know in Maryland, when I worked in Maryland – and this was going back. And since that time, I’m glad to hear the Department of Aging has kind of changed their stance – if you were building a continuing care retirement community, they were mandating. Matter of fact, the project I talked about earlier going back to the ’90s, we had a smaller health care footprint and were required by the regulators to make it bigger. And it never filled up because the regulators were really looking at the actuarial models that, I think, were really skewed a little bit towards more health care.

Larry Bradshaw: [00:21:24] So, yeah, I’m seeing a lot of that. I’m hearing about a lot of it. And I’m also hearing that the state of Maryland now, instead of trying to provide bigger skilled nursing beds, are trying to partner with home health and home care to make that happen too. So, I’m excited about the direction because I think it’s going to alleviate some of the issues relative to the high cost of health care, but also the staffing shortages.

Larry Bradshaw: [00:21:48] Those are our critical components. I mean, marketing is always critical, but we’ve got a pretty big aging population coming into place, but we don’t have the individuals to care for people. And that’s a tough job. And when I left National Lutheran, I said several times, because our wages had gone up so much because of regulatory living, wage requirements, and everything else, we were now competing with fast food restaurants and other such restaurants which were paying similar amounts of money. And, frankly, that’s a much easier job than taking care of seniors who have really acute and chronic care needs.

Larry Bradshaw: [00:22:30] I think that’s beginning to address some of the really critical vulnerabilities. And that’s a key word, vulnerabilities in our sector because we are vulnerable to those types of things.

Jennifer Drago: [00:22:41] I want to return to kind of the financial piece and ask you, you know, you were a CEO for a number of years, what are the key metrics that you had on your dashboard that you looked at, I don’t want to say day in and day out, but certainly weekly? And are there any surprise metrics that you can share with us that you would monitor that perhaps other CEOs may not have?

Larry Bradshaw: [00:23:03] Okay. Yeah. That’s fair. We built an in-house business intelligence model that we were really proud of that really distilled and focused a lot of things down. But, of course, every day you want to look at occupancy, not just overall occupancy, but also within your skilled nursing. We try to have a fairly high Medicare profile, especially at our flagship community. And so, I would look at that Medicare model because that was appropriate that we kept a certain level.

Larry Bradshaw: [00:23:35] Our second community that we built in Virginia, I think we were pretty innovative. We only built ten beds for 200 independent living units, ten-bed health care, and we had a 16-bed memory care. And it’s funny, I think it worked pretty well, except psychologically for the residents who were constantly saying we need a bigger footprint. That was very interesting to me.

Larry Bradshaw: [00:24:00] But anyway, I digress a little bit. But occupancy and then that mix within skilled nursing, I think, were very important. I took a look at our average wages by job classification a lot. I really paid attention to that. And as the pandemic was wearing on, we were able to track our tenure really well. Sorry. I’ll take a real quick drink of water. Sorry. So, we were looking at that fairly closely. Our liquidity levels were important. Those were the really big ones.

Larry Bradshaw: [00:24:35] And then, when I went to staffing, I looked at open positions, the number of open positions. We had the average number of FTEs. And then, I looked a lot at our production metrics on our staffing. I looked at productivity, PTO hours, education hours, really looking trying to make sure overtime was a big one too. But really trying to make sure that our production metrics were greater than 92 percent. Because I felt like if we could keep our people on the floor or in the units for 92 percent of the time, meaning we weren’t replacing them for paid time off or education purposes, we were probably doing pretty well.

Larry Bradshaw: [00:25:17] And if we could keep our overtime numbers under 3 percent, that was really positive for us. When I first started there, the overtime numbers were 20 percent. It’s one of the first things we really went after was just managing the people. And, you know, it just wasn’t everybody could go on vacation the same day. They had to be some structure. And we got that down lower than 3 percent, even lower than 2 percent for the most part. So, those are metrics I really took a look a lot at.

Larry Bradshaw: [00:25:45] And of course, the other thing relative to Medicare was, because Medicare is a capitated cost, we just looked at what our expense levels were to that. Because if Medicare costs, Medicare expenditures get a little bit out of control, all of a sudden those really high daily reimbursement rates you get on Medicare, they can deplete really quickly. So, we looked at that. Because we had a large Medicare utilization, we tried to find that sweet spot where the reimbursement levels were maximized. And then, once our residents got to that point, we would want to make sure our service structure had them moving to the next level of care because reimbursements were going to go down.

Larry Bradshaw: [00:26:27] So, I hope that helps. But those were the big ones we took a look at for the most part. And we had them on a dashboard. They would shoot up on your screen pretty much on-demand or anytime you want to look at them.

Jennifer Drago: [00:26:37] Yeah. I’m a big proponent of dashboards and metrics, what you measure matters and gets your attention. And I love that you talked about productivity standards because my experience in senior living was that it didn’t seem to be many organizations that were truly focused on it in the way that you described. And, hopefully, that’s changing, because I do think that’s a key to our success in the long term for sure every single day.

Larry Bradshaw: [00:27:07] The other thing that I think is important to look at is really the percentage of your salaries and labor related costs, including any contract management and employee benefits to your operating revenue. Because if that number begins to get too high, those costs essentially become fixed costs because not a whole lot you can do when you have to staff the project. But if those numbers are closer to 50 percent, that gives you a little flexibility on areas, if you have to cut, you can cut. But if it’s all staffing, it’s hard to do, unless you’re tremendously overstaffed. And I don’t think anybody’s having that situation.

Jennifer Drago: [00:27:44] Yeah, for sure. You mentioned occupancy, and that’s been such a push since the pandemic, trying to restore our occupancy to pre-pandemic levels. And I know now, actually, we’re probably all shooting for a higher target, a higher stabilized occupancy because of the increase in staffing costs and things like that, that we’ve already talked about.

Jennifer Drago: [00:28:07] But you mentioned something to me in our pre-call that, you know, occupancy alone does not tell the full story. And we can have a very high occupancy organization that still has some financial challenges. So, can you give some context to what you’ve seen as you’ve consulted with organizations around this?

Larry Bradshaw: [00:28:25] Well, I think if you have high occupancy levels, the first thing I’m going to say is that’s really good. The second thing I’m going to say, if you have really high occupancy and you’re struggling financially, then you want to take a deeper look. If you’re high occupancy is there but you can’t get enough units for scale, I think that’s something to really take a look at.

Larry Bradshaw: [00:28:51] I mean, obviously, if you have a ten-bed nursing facility and you’re full, you’re up to 98 percent on a rolling basis, that’s probably pretty good. Except that is such a small scale. You probably can’t get any kind of efficiencies in staffing. So, I think scale makes a big, big difference in that. I think also – I talked a little bit about it earlier – if you’re occupancy gets too high, it could pinch you in other areas, especially of entrance fee refunds that are sitting on the sidelines waiting to be paid.

Larry Bradshaw: [00:29:20] And, also, if you’re reliant on entrance fees to have your debt service coverage levels be adequate and, all of a sudden, you’re at 98 percent, you don’t have any any product to sell. And so, then you’ve got to rely on operations. And if your operations are weak and very reliant on entrance fees, and if you don’t have any product, then all you have is your operational expenses, the only thing you can do is cut costs or raise entrance fees or raise monthly fees a lot. And residents don’t like to do that.

Larry Bradshaw: [00:29:52] So, I think occupancy is a great beginning barometer, but if I’m called in and someone says, “Well, I’ve got occupancy at 97 percent, I’m just losing money,” that tells me several areas to look, scale, your cost structure, what your staffing structure look like, what are your fixed costs, what are your managerial costs if you’re doing your own management, or your outsourcing, what are your dining costs because dining costs begins to get bigger. And how much debt do you have? I mean, if you’ve got debt where you’re needing to turn 30 percent a year to cover debt from interest fees, you’re just over-debted. And that’s the other thing to look at.

Larry Bradshaw: [00:30:34] If everything is good and it looks good and it’s not good, there’s something underneath it. And we talked before the call today, I sometimes think weirdly than other people, which is I don’t know if that’s good or bad. But I have a concept of when I talk to people and I talk specifically about debt operating margin, and I say, “Your net operating margin is good enough. The inevitable question is what should it be?”

Larry Bradshaw: [00:31:03] And I think in a perfect world, you know, your operations should cover your operational expenses, obviously. I think it should cover some routine CapEx to a certain level every year, not expansion or any major products, but routine CapEx. And it should cover your principal and interest on your debt. And if it does those things and you’re achieving that level, chances are you’re taking most of your entrance fees and putting them in reserve for a rainy day, whether it’s a project or for a potential drop in occupancy.

Larry Bradshaw: [00:31:37] So, that number is easily calculatable. That’s a word, calculable, calculatable. But sometimes it’s so much different than what is actually happening. I’ve worked with a company many, many years ago and they said, “What should our net operating margin be?” And I said, “Well, in a perfect world, it’s going to be 18 percent, but you could probably live with 14.” And they’re at 3 or 4 percent, that’s a big hill to climb. And I think a lot of organizations back then were saying, “Well, you know what? We’re going to just keep clanking away.” So, they didn’t spend money on CapEx. They didn’t spend money on marketing. And in five years, guess what happens?

Jennifer Drago: [00:32:15] Right. Right. Yeah. When things get tight, you have to cut somewhere. But maybe the target needs to be different and you structure everything around that target. I love that you said your net operating margin should cover some amount of CapEx and then your principal and interest, then you’re in good shape.

Larry Bradshaw: [00:32:32] Yeah. And I mean, your cap interest, if you can keep your days – the ratio just skipped my mind.

Jennifer Drago: [00:32:39] Days cash on hand.

Larry Bradshaw: [00:32:40] The age of plant. Age of plant There you go. I mean, if you have a goal that your age of plant is going to be around ten years and your routine CapEx keeps that at ten years, that’s the amount you ideally will want to cover from operations. I mean, it just works.

Larry Bradshaw: [00:32:56] But some people or some organizations, you can’t get there. So then, the question is, “Well, what can I get to where I’ll be doing good things?” And I said, “Well, there’s thriving and there’s surviving.” I mean, if you want to thrive, you need to get to this area, at least, and maybe not all the way there in year one. But maybe it’s a part of your strategic plan that in five years you’re going to get to this optimal level. And on the surviving side, if you’re at 4 percent, you need to be at 14 percent, and you’ve decided you’re going to stay at 4 percent, you’re always going to struggle. I mean, the math is simple on that. But sometimes it’s hard for organizations to make those tough decisions.

Jennifer Drago: [00:33:36] Yeah, absolutely. Like we were just talking about the pandemic times, post-pandemic, we’re still recovering. But I love the fact that you’re encouraging providers and executives to reconsider their targets and where they’re at so that they can thrive. And, again, they not may not get there in a year, but we can work toward that and don’t have to keep struggling.

Larry Bradshaw: [00:33:58] So, like anything, it’s hard to get where you’re going if you don’t know where you’re going.

Jennifer Drago: [00:34:01] Yes. As a strategy consultant, that’s kind of my main message. If you don’t have a vision, where are you headed? You wouldn’t take a road trip if you didn’t know where you were going and you didn’t know how to prepare for that. So, we’re very aligned in that regard.

Jennifer Drago: [00:34:16] In our final question, I want to just ask you for your best piece of advice offering to current CEOs to strengthen their financial resiliency and sustainability in this challenging climate. So, if you just want to give one final pearl of wisdom for us, I’d appreciate it.

Larry Bradshaw: [00:34:34] I guess it probably would go away from the financial aspect, but I would say just build a great team. Build a great team of people that you work with. Not the people that work for you, but people you work with. Build a great board, because that becomes a key element. Because if you have a great board and you are transparent and you really provide communication, then they can help you because they can get you over the hump.

Larry Bradshaw: [00:35:02] And the last thing I would say would be to create a great communication and transparency plan to your residents and your staff. Not just your senior team, but your staff, because the higher you go in the organization – we all know this – the easier you are to get toppled if you don’t pay attention to those things.

Larry Bradshaw: [00:35:20] But I kind of always thought everybody’s going to make mistakes and I certainly made my share during my career. But if you can build a great team, that team will minimize your mistakes. If you can build a great board, you lessen your vulnerabilities. And if you can really build a great relationship with your residents and your staff at the communities and the line staff, it’s hard to beat that that combination. So, I really would encourage that.

Larry Bradshaw: [00:35:47] To your point, look at dashboards, look at metrics, but educate your team on what you’re looking for. Because if your team knows what you’re looking for – as the CEO, I had a great team and I knew they knew what was important to me. And if one of those things got out of line, they would come to me and say, “Hey, Larry. This is out of line.” And then, we could deal with it together. They didn’t come into my desk and dump it on my desk and say, “You need to fix this.” It’s like, “Okay. How do we fix this?”

Larry Bradshaw: [00:36:17] I just think creating that great team, great board, great relationships, that’s where you get to where you need to go. And as a strategic consultant, my team, when I first got to Nationals said, “Well, financial stability needs to be our goal.” I said, “No. Financial stability is a result.” It’s a result of resident satisfaction, employee satisfaction, board integration, and how well your team stays together. If you do those four things or five things together, the financial metrics will play themselves out and they’ll be positive. But if that’s your goal, you probably won’t have as deep a team and a cohesive as team as you want to have. So, I guess that’s my pearl of wisdom at the end.

Jennifer Drago: [00:37:00] Yeah. What a great message. And I’m so glad that I asked you that question because you got to see your leadership in action there in terms of what was most important to you. And I didn’t have the opportunity to work with you during your career, but I sure wish that I would have, because I imagine that you were an amazing CEO.

Jennifer Drago: [00:37:19] So, I just want to thank you so much for sharing your wisdom and experience with us and giving us a lot to take away in terms of how to build our financial resiliency as an industry. And, Larry, I know you’re on LinkedIn. Is that the best way to get in touch with you if anybody has some follow up questions?

Larry Bradshaw: [00:37:36] Well, I’m retired for sure. But, yeah, that’s probably the best way to do it.

Jennifer Drago: [00:37:39] He’ll check it once every couple of weeks.

Larry Bradshaw: [00:37:42] I’ll check it. I still have that little habit of checking things out, but I’m trying to break the habit. A little bit more golf and a little bit less checking things like that. But I’d like to continually to engage and talk about things. I enjoy doing this. And I’ve really enjoyed speaking with you today and I appreciate the offer to join your team. And, you know, I wish you all the best of luck. I think you’ll do great.

Jennifer Drago: [00:38:06] Thank you so much. Thanks, Larry. And today, you’ve been listening to Senior Living Visionaries. It’s a podcast that’s specifically curated for senior living leaders with the hope that we can share innovations, disruptions, and best practices in our industry to kind of rise the tide, lift all boats and rise that tide up. So, thank you.

Jennifer Drago: [00:38:28] And if you’d like to subscribe to our podcast, you can always be notified of new episodes, get transcripts, get special things that our guests are giving away, and you can do that at seniorlivingvisionaries.com. Again, thanks so much. We’ll see you next time.

Larry Bradshaw: [00:38:44] Thank you, Jennifer.

Outro: [00:38:48] You’ve been listening to the Senior Living Visionaries Podcast and Radio Show, where we showcase the leaders and innovators in the industry who are pushing the boundaries and setting the stage for the future in senior living and services. Join us next time as we share the bold ideas and breakthroughs of the industry’s most forward thinking leaders here on Senior Living Visionaries.