NDIS - don't hold your breath

Following from my last post, I had a number of queries from people wanting to know if their organisation will survive financially under the NDIS?

Great question, but there is no simple answer. There are many, many factors that will determine an organisation's survivability and many of them I have covered before here .

But one thing is for sure, how your organisation treats cash in the lead up to, and in transition to, the NDIS will be one of the critical survival factors.

Cash is like oxygen for your organisation - without it your organisation dies.

Moving from the current in-advance system of payments for service types or outlets, to an in-arrears market-based approach of people purchasing supports, is a bit like holding your breath when snorkelling as far as cash is concerned.

When you snorkel and you want to dive down, you have to rely on the oxygen in your lungs until you break the surface again and can take in some more air. If you dive too deep or for too long, the consequences can be dire.

When you transition to the NDIS, unless you fundraise or have other non-disability business lines, your organisation will have to 'hold its breath' to survive on the cash it has, all the while continuing to provide supports to individuals, until it gets paid.

There are three things your organisation needs to do to make sure holding its breath does not have dire consequences:

• have sufficient working capital
• be able to provide support at a unit price that is inclusive of all overhead costs that does not exceed the maximum the NDIA will pay
• have efficient invoicing systems

1. Working capital

Whilst there are a plethora of fancy financial calculations that can be applied to your organisation, one of the simplest and most telling, is 'working capital'.

Simply put, working capital is how long your organisation can hold its breath i.e. how long your organisation can continue to provide supports before it next gets paid.

It is pretty easy to work out from data that is usually publicly available in your organisation's annual report.

Tip - you might find a copy of your organisations annual report on their website under 'about us/publications'.

You only need two pages, first go to the page called 'Statement of Financial Position'. On this page, you need two numbers: Current Assets and Current Liabilities (don't worry about the non-current figures). FYI the 'current' in assets relates to things that are cash, or can be quickly converted to cash e.g. the invoices you have issued. 'Current' in liabilities means things that will use cash in the near term e.g. bills your organisation knows it has to pay, staff leave liabilities etc.

Next, go to a page that could be called a few different things, it might be called, Statement of: Financial Performance, or Profit and Loss, or Comprehensive Income. What you need here is the Total Expenditure for your organisation NB you might have to add it up manually, just be careful not to include any income lines.

When you have a total expenditure figure, divide it by 12. This gives you the amount of money your organisation needs to operate for just one month.

Now do this calculation:

(current assets - current liabilities)/monthly expenditure

The result is how many months your organisation can hold its breath, i.e. how long it can operate before payment on its invoices for support provided starts to roll in.

If the number is less than 1, then cash is going to be incredibly tight under the NDIS. The gold standard is a number greater than 3.

Don't immediately panic if it is a very small number, your organisation may have other 'non-current assets' like buildings, some classes of shares, or plant and equipment etc that it can sell to 'free-up' some cash.

2. Unit price

There are lots of unit costing tools out there, some are good, some are complex, some are confounding. What I'm going to show you is a quick and dirty 'back of the envelope' calculation you can do at an outlet level, to work out your hourly unit cost.

Calculate the number of full time equivalent direct support workers. Remember to include all your part-timers and casuals, just add all their hours together and divide by 37.5 to give you the FTE number. Don't include management, administration, or purely supervisory hours - if a supervisor does provide direct support, then it is ok to attribute those direct support hours (only).

Get your last annual profit and loss statement for your outlet (or budget) and get the total annual expenditure figure. NB make sure this figure includes all overhead cost attributions e.g. corporate services costs, rent, management etc.

Now do this calculation:

No of FTE staff x 0.8 (staff only ever spend about 80% of their time delivering service) 37.5 (weekly working hours) x 43 (number of weeks available - includes provision for 5 weeks annual leave, 2 weeks sick, 1 week training, 1 week public holidays) - hey I told ya it was quick and dirty!

This gives you the number of annually available support hours at your outlet that you can invoice for if everyone is providing direct support at least 80% of the time.

Now divide this number into your total expenditure.

And voila! The result is an approximation of your hourly unit cost.

Now, doddle over to the NDISs website and have a look at the payment and pricing schedule

NB - in comparing, make sure it is apples with apples. It can be a little tricky converting what you currently do (i.e. provide a service type) to the support items in the clusters that the NDIA will pay for.

Now if your figure seems expensive there are really only two main things you can do. One, look to see if you can reduce your overhead costs - or two, look at caseloads (if appropriate).

NB my personal view is that some pricing by the NDIA is currently too low, particularly for personal support and that over time that some of the current prices will rise.

Also, your unit cost should not be your unit price - your unit price needs to be higher in order to be able to reinvest in your organisation - again, a personal view, but a net 7% above cost would seem reasonable from my experience.

3. Invoicing

This is a new requirement for many of you and it needs to be efficient.

The good news is most of your invoices will be paid within 48 hours of lodging them. The exceptions being where a person with a disability manages their own Individual Support Package or uses a broker of some kind.

You will still have to determine however, how you will collect invoice data (and by whom), how often you submit invoices (and by whom). Your accounts people (or you if it is a small organisation) also need to know how they will do things like reconciliations with bank statements etc.

Where the support provided is being invoiced directly to the person with a disability or their broker, you will need to do the above, plus determine what your terms of business will be i.e. how long your organisation is prepared to hold its breath for till they pay!

Hope that helps?

As always, please don't hesitate to ask any questions you may have or make suggestions for future posts.

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