Selling a Non-Medical Home Care Agency

What a buyer counts first

The first number a buyer asks for is weekly billed hours, by month, going back at least two years. They want the trend and they want the shape of it. An agency with a steady base of clients on regular weekly schedules is worth more than one that lives on short stretches of care after a hospital stay, because short stretches end and have to be replaced with new clients every month. Buyers ask how long the average client stays, how many clients started in the last year and how many stopped, and why the ones who stopped did so. Clients move to a facility or pass away, and a buyer expects that. They look for whether the agency replaces them at a steady pace.

The second number is the spread between what the agency bills for an hour and what it pays out for that hour, after payroll taxes and workers' compensation insurance. That spread has to cover the office staff, the scheduler, marketing, software, insurance and the owner's pay, and whatever is left is what the buyer is purchasing. If the owner has been working shifts as a caregiver or answering the phone at night, a buyer will treat that labor as a cost they have to replace. Our post on what counts as an add-back explains how the owner's pay and personal expenses get adjusted, and why a buyer pushes back on the ones that are wages for work somebody still has to do.

Private pay, long-term care insurance and other payers

Private pay is where most buyers feel most comfortable. A family pays from savings or income, the agency sets the rate, and the invoice is paid by card or bank draft. The weakness is that a family can end the service on a day's notice, and the rate has to stay competitive with every other agency in town.

Long-term care insurance sits in between. The policy usually pays the agency or reimburses the family after a waiting period, and it requires care notes, caregiver signatures and visit records that match what was billed. A buyer will ask what share of hours is funded this way, how often claims are rejected or delayed, and who in the office handles the paperwork. If one person understands the insurers' forms and nobody else does, that is a risk the buyer will notice.

Other payers might include veterans' programs, county or state programs that fund in-home support, and contracts with managed care plans or hospitals. These can bring volume. They also tend to bring lower rates, slow payment and contract terms that may not move to a new owner without the payer's consent. The mix matters because a buyer pays more for hours that are billed at steady rates to many families than for hours that depend on one program continuing to renew. Our post on customer concentration covers how buyers look at that kind of dependence.

The caregiver bench and the scheduler

The caregivers are the product, and a buyer treats the bench the way a restaurant buyer treats the kitchen. They want to know how many caregivers are active, how long each has been with the agency, how many left in the last year, and how much of the weekly schedule is covered by a handful of people. A bench where a few caregivers cover most of the hours is a risk, and a buyer will say so.

Many clients are loyal to one caregiver and will leave if that caregiver does. A buyer will ask what the agency does when that happens, how clients are matched to caregivers, and whether the agency has a second and third person who know each client.

Then there is the scheduler, sometimes called the care coordinator. This is the person who finds a replacement at six in the morning when a caregiver calls out, who reassigns hours when a client goes into the hospital, and who hears about problems before the family does. A buyer will want to meet this person and will want to know how long they have been there and how they are paid. If the owner does this job personally, expect the buyer to ask how it gets done after the sale, and expect a lower price if there is no answer. The owner dependency post covers how to move a role like this off your desk before you list.

Whether caregivers are employees or independent contractors is a question every buyer and every lender will raise. Rules about how workers are classified vary by state, and your attorney confirms what applies to your agency. Consistent payroll records make the question easy to answer.

The records a buyer will ask for

Expect requests for business tax returns, monthly profit and loss statements, a balance sheet, payroll registers and the quarterly payroll filings. The scheduling and billing system matters most. A buyer wants an export showing hours by client, by caregiver and by payer, and then wants to see that those hours tie to invoices, and the invoices tie to deposits in the bank. Receivables aging reports show how fast each payer pays, and a buyer will look hard at anything outstanding for a long time.

They will also want the client service agreement and a list of clients with start dates, with names held back until a buyer is serious and has signed a nondisclosure agreement. Caregiver files come next, showing background checks, training, health clearances where they apply, driving records for those who transport clients, and annual reviews. The insurance file includes general liability, professional liability, coverage for abuse and misconduct claims, workers' compensation, and any bonding or crime coverage, along with loss history for the last several years.

Licensing and what has to transfer

Many states license home care agencies or require them to register, and some leave non-medical care lightly regulated. Rules vary by state and your attorney confirms what applies to your agency. What a buyer needs to know is whether the license belongs to the company or to the owner personally, whether it can be assigned, whether a change of ownership needs notice or a fresh application, and how long that takes. A lender will not close on an agency that might have to stop serving clients while a license is reissued, so the timeline gets built into the deal early.

That question often decides whether the buyer wants an asset sale or a stock sale, and our post on asset sale versus stock sale explains the trade-off. Past that, the office lease, phone numbers, scheduling software account, payer agreements, client service agreements and the people all have to move, and some need consent.

What tends to sink a sale

In the deals we see, home care sales stall for a handful of reasons. The hours fell during the last year and nobody can explain it. Caregiver payroll was handled in a way that a buyer's accountant questions. The owner is also the scheduler and the best caregiver. One payer or one program makes up most of the revenue. The billing system does not tie to the bank. Or a caregiver or family hears the agency is for sale and calls a competitor before the buyer is even in the building. Caregivers worry about their jobs and families worry about their care, so we market an agency without naming it. See when to tell employees for how to time that conversation.

Getting the agency ready

Start a year ahead if you can. Make sure every billed hour is in the scheduling system and ties to a deposit. Put a second person in the office who can run the schedule and the insurance paperwork. Build the bench so that no client depends on a single caregiver. Check that caregiver classification and payroll are clean. Read the license and each payer agreement for what happens when ownership changes. Tidy the caregiver and client files so they can be reviewed without surprises.

At Business Advisors of America we start with a valuation built from your own records, then prepare the materials a buyer and lender will expect and screen buyers before they learn who you are. If you are thinking about selling a non-medical home care agency, a short call with us is a reasonable first step.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.