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Are Home Healthcare Businesses Good Investments? What About Future Growth?

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Comments & Replies: 2     Views: 3847     Posted By: Peter Siegel MBA  

A buyer contacted me about financing (the purchase of) a home health care business and asked me about the future of this industry - I take on this question with other Users And Intermediaries on BizBen regarding the home health care industry and it's future for potential buyers.

Topics: Buying A Business     Tags: buying a business



At one point in time, everyone has been reminded how important it is to respect our elders. From minding our p's and q's in our youth, to eventually giving back and taking care of loved ones who supported us in our upbringing, there are many different ways to show appreciation for our elders. There comes a point in life when many will depend on others to meet their every day needs, and rely on support for tasks that once came easily to them. A booming industry that values quality service to others, while enjoying healthy profits is the home healthcare industry.

The home healthcare industry is rapidly expanding and will continue to see vast growth into the 3rd decade of the 21st century. By 2020, there will be 5 million people in the United States ages 65 and older. When members of the baby boomer generation look to retire and seek home healthcare, professionals in the field will look to cash in. When looking for a business to buy in this industry, there are a few factors that a buyer should be aware of that can influence the rest of the buying process. As mentioned before, the market is booming so there will be plenty of competition to look out for. Additionally, most business in the home healthcare industry are sold as asset sales to help minimize the exposure to litigation during the sellerís era of ownership. In a field that may have added risk due to the clientele that is served, research into past incidents during the due diligence period are crucial to minimize the risk of walking into a bad business deal with hidden problems. Lastly, a potential buyer needs to be prepared for the constant need to hire new employees, as this industry sees a high turnover rate of employees. While it is incredibly rewarding work, it can also take its toll on the very people who are tasked with helping those in need.

When buying a home healthcare business, the value of the business goes far beyond the price tag. An appropriate price to pay for your new business can be found in the range of 4-7 times the current ownerís earnings before interest, taxes, depreciation, and amortization (EBITDA), or 2-4 times the sellerís adjusted net income.

After finding a price that you are willing to pay, you should know that SBA financing is commonly available for 75% of the total cost, by way of a 10-year loan. If you donít have a lot of money to spend on the remaining cost, seller financing in this industry in popular in the range of 10-25%. This means that you aren't necessarily required to have the full sum in your pocket, and can pay off your financial loans while you are enjoying healthy profit in the ballpark of 20 percent, which is an industry standard. Financing and having the costs covered by second and third parties is one of the many perks of purchasing a business in the home healthcare industry.

Replies To This Comment
Yes., home health care business's are solid investments and can provide a nice return on investment.

But, before you jump in with both feet make sure you take into consideration the following:

* Rising Employee wages and associated costs
* Increased licensing and government oversight
* Employee management and cost of ownership
* Competition, how many other home health agency's are in your area?
* Demographics, what's the Client base look like?

Again, yes this is a great business, and it's a growing industry as our Baby Boomers come along, just make sure you do your homework before diving in.



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Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

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