Wednesday, January 21, 2015

Fire Department Financial Resolution #3

With every new year, most people want to make change or improvement in their lives.

Over the first few weeks of 2015, I'll share 3 very smart fire department financial resolutions.

Resolution #3 - Learn something

Every week, I have a conversation about big money questions with someone who does not know anything about finances.  Even more disturbing is that they were chosen as the most qualified from their department.

I try to be as much an educator as possible in these conversations.  I don't want departments to waste money or to do something today that financially hurts them later.  Yet I often get blank stares and disinterested replies.  Or even worse, entrenched uniformed opinions of a mind that can't be changed.

Not knowing can hurt you a lot

Now, it may be that most of these callers are people that know they aren't calling about their personal money and they aren't committed to leaving the department better off when they leave.  Or they're confused or too proud to admit they don't know what they are doing.  The motive is unimportant.

It's vital to learn how finances work.  To know the difference between assets and liabilities, expenses and revenues.  It's vital to know what your financial condition is saying about where you stand and what you will be able to do in the future.

If no one on your department knows, invest some time and money by hiring someone who can help you - a CPA or banker, for example, who can educate your department (or at least the key people) about what financial records to keep, how to keep them properly, and how to use them as a tool to running your department.

Summary

The costs of running a fire department are getting large.  And big money budgets can allow big money mistakes to happen.  Knowing more about finances will help you and your department.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, January 14, 2015

Fire Department Financial Resolution #2

 With every new year, most people want to make change or improvement in their lives.

Over the first few weeks of 2015, I'll share 3 very smart fire department financial resolutions.


Resolution #2 - Prepare for the big expenses

I receive calls weekly from a department who's truck just went down.  They need a new truck now, it's an emergency purchase, and they are anxious just to get a truck in the station.  These calls are from small volunteer departments to rather larger cities so it's the complete range of departments who have this situation.

Now, a fire truck just doesn't just go down.  We all know that.  It's been flagging the end of its life span for quite some time as repairs go up, down time increases, and more and more the truck is seen as unreliable.

But no one has planned for the judgement day on the failing truck.  So, one day, the truck just goes down and the department is forced into action.

The problem is that the actions are usually financially harmful.

Why this costs big money

The first thing is that the department has not been financially saving for some or all of the replacement truck.  So, they are forced to borrow more money.

Second, the department has not been budgeting for a payment.  So, it has no money in this year's budget and defers payments for as long as possible.  Time is money and deferrals cost a lot of money.

Lastly, the department's lack of planning usually means choosing the longest financing term possible to keep payments lower.  Again, the more time you use, the more money you pay.

Summary

It is said that failure to plan is planning to fail.  We all know that a fire apparatus does not fail immediately.  It starts to fail over time.  And not using that time to plan for the replacement truck leads to some poor financial decisions.
 


Stay safe!
John R. Hill
President
First Bankers

Wednesday, January 7, 2015

Fire Department Financial Resolution #1

With every new year, most people want to make change or improvement in their lives.

Over the next couple of weeks, I'll share 3 very smart fire department financial resolutions.

Resolution #1 -  Make a budget


I see two types of fire departments - those who make budgets and those who do not.  They differ dramatically in their financial situation.  

Budget departments have newer, better, and more equipment, more savings, less debt, and more financial freedom.

No budget departments struggle and adapt to events beyond their control.  They are forced to make impulse, unplanned purchases and must accept poorer financial terms just to get it done.

How to make a budget


Understand where you get your money and what you must spend each year to run a safe and modern fire department.  Subtract the costs from the income.  Is there some left over?  Good, try to save it.  If not, that's bad.

If you don't have anyone who is well versed on financial matters, get someone who can help.  A CPA or local banker to serve on your board.  Listen to what they say and learn from their experience.  Keep accurate financial records (I know that's not fun as fighting fires but it's important).

Lastly, a good budget always includes some form of savings to prepare for future large costs such as new trucks or major repairs.

Summary


If there is 1 thing that will help your fire department reduce it's stress, it's having a budget.  There is a huge clear difference between the budgeters and the non-budgeters.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, December 17, 2014

Fire Station Financing Best Practices

Constructing a fire station is a very complex event.

I thought I'd share some best practices from my years of helping fire departments construct and finance their new fire station.

Here's my top 5 list:

  1. It will cost more than you think.   There are always overruns and changes that add to the cost of their project.  It's safe to assume a 10% cushion but I regularly see a final cost 20% more than the original budget.  Best Practice:  When you set your budget, plan on how you will pay for 120% of the original cost.
  2. It will take longer than you think.  And time is money. At least, you pay more when you borrow money for longer term.  Best Practice:  Budget more for borrowing costs.
  3. It's not cheap.  Depending on your local rules and regulations, you will generally pay 1 - 2% of your mortgage for transaction costs like appraisals, title insurance, and environmental investigations.  Best Practice:  Be prepared for the mortgage transaction costs.
  4. It can go very wrong.  I've talked to dozens of departments who shared horror stories of poor contractors.  Stories of unfinished stations, vanishing contractors who took the money and ran, didn't build to satisfactory standards, etc.  Best Practice:  Don't pay before the work is done.  Set up a check and balance that the work is done well before you issue progress payments.
  5. Failure to plan is planning to fail.  I talk to departments who get so far ahead of themselves with the excitement of a new station that they make dozens of small financial mistakes.  Mistakes like not planning for extra costs or rolling costs into the financing.  Best Practice:  Plan thoroughly.  This is a big project and huge mistakes are easy to make.  Mistakes that will take years to overcome.

Summary

In a word, plan.  Then, plan some more.  Understand that constructing a new fire station is a very complex physical and financial project.  If you don't know how, get help from someone experienced with exactly what you are trying to do.

Stay safe!
John R. Hill
President
First Bankers