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Evaluating Residential Care Homes To Buy


A business category currently generating a great deal of buyer interest involves the operation of facilities catering to an aging American population.

Described in various ways, as licensed care homes, assisted living properties and residential care facilities, these enterprises can be very profitable and offer substantial potential for growth as the market for their services expands.

According to current industry estimates, nearly eight million people require living circumstances which include some degree of assistance. The figure is expected to approach ten million individuals by 2010, and continue to grow in the years following. This is an appealing prospect for entrepreneurs seeking promising business opportunities.

CHARACTERISTICS OF BUSINESSES

Those investigating the industry should be aware there are several business models for companies that deliver services in this area. They include, at one end of the spectrum, the adult day care organizations which do not provide living facilities, and at the other extreme, nursing home operations which employ medical professionals on site, to aid clients living on premises. In between are a number of facilities with limited care for seniors who are full-
time residents, and are able to handle most of their needs, but rely on the staff to handle such tasks as preparing meals and organizing activities. These limited-care operations are of particular interest to investors.

Licensed and highly regulated by the states in which they do business, residential care facilities range in size from one small property with three or four beds, up to a complex of several buildings and 100 or more clients.

Entrepreneurs reviewing businesses of this type for possible purchase will discover that most include the real estate, with pricing influenced by the location and condition of the property along with the amenities offered. A property for sale in an easily accessible locale, that shows well and includes a game room, café and well-equipped exercise facility is more valuable than one which generates the same income but lacks these appealing features. But property is not always available; some licensed care homes are marketed to business buyers with long-term leases, perhaps with the right of first refusal to purchase the real estate if offered in the future.

WHAT TO KNOW

Due diligence should begin by determining the licensing status of a prospective purchase and its record with authorities. Companies that have incurred violations of health, facility maintenance, or record-keeping rules often continue to operate, but may be subject to penalties by government agencies. A prospective new owner should be aware of any such problems because if they are not resolved, he or she may, after purchase, become responsible to pay fines or incur expensive corrections to bring the facility and its operations into  compliance.

Valuation of companies in this industry is based primarily on earnings. These average from 35% to 50% of gross revenues, depending on operating efficiencies and level of occupancy. A facility with clients occupying 85% or more of its capacity will show more earnings as a percentage of gross than a similar-sized operation with only, for example, six or seven of ten beds in use. A company being sold with its real estate commands a higher price than a similarly performing business marketed with only the right to lease property owned separately. However, cash flow generated is usually the largest single factor considered in the determination of business valuation. Appraisers consider properties used for residential care companies similar to hotels and other single-use real estate in the hospitality industry. Rather than the building and its improvements being priced by comparison with residential properties in the area, the real estate used for an assisted living business is valued as a commercial 
property--it is worth a multiple of the earnings generated by the business occupying it.

Industry rules of thumb calculate the value of a residential care business using a multiple of six or seven times annual earnings before deducting interest, taxes and reserves for amortization and depreciation. Another approach is to peg the value in the range of 70% to 80% of the annual revenues averaged over the prior three years.

Interested buyers should become informed about trends in this industry and should recognize that values are expected to grow as demand for this service continues to increase in the future.

About The Author - Peter Siegel is the founder and President of BizBen.com - Businesses For Sale In California. A nationally recognized author (3 books and a syndicated small business blog) and expert consultant. If you are selling a business and need professional assistance utilizing high performance advertising, marketing, and highly effective strategies, or individual customization with your BizBen Power Search options in buying a California business, you can reach him at 925-785-3118.

Categories: Buying A Business







  Helpful Resources To Assist In Selling And Buying California Businesses
Timothy Cunha JD, Business Broker: SF Bay Area

Experienced attorney, & business broker. I & my EvergreenGold team offer owners sound advice & expertise to build business value & achieve profitable sales. Call me today for a FREE business evaluation & SWOT analysis for your business. Call 650-600-3751 or 650-866-5393 Text.

Ralph Santos, Business Broker: Health Care Specialist

Using my MBA and my perseverance I will make things happen! I provide business brokerage niche services specializing in the hospice and home health care agency industry in the Los Angeles County or Ventura County areas. For either buying or selling assistance please phone or email me today.

Michael Davidson, Business Broker - Southern California

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Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Rob Hartman: Business Broker, SF Bay Area

Business brokerage services in the SF Bay Area. I bring skill, integrity and energy to all of my clients and our projects. I'm accustomed to working with a wide variety of clients and their businesses; large or small, simple or highly complex. Get a free consultation by phoning 650-279-3097.

Peter Siegel, MBA, BizBen Founder, ProBuy, ProSell Programs

Founder & President Of BizBen.com (since 1994) & BizBenNetwork.com. I am the Lead Facilitator for the ProSell & ProBuy Programs on both websites. I consult daily with buyers, sellers, and intermediaries daily about buying and selling businesses. Call 925-785-3118.

Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.


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