Selling an Assisted Living Facility

Occupancy and the care mix

The first thing a buyer wants is occupancy, month by month, over several years. A community that holds a steady census with a short waiting list looks stable. One that swings between full and half empty looks like it has a problem with its reputation, its marketing or its staffing. Buyers also look at the move-in and move-out pattern, since a building with a high turnover of short stays costs more to run than one with long stays.

Resident acuity is the second thing. Buyers ask how many residents need help with bathing, dressing, medication and transfers, and how many need more than one caregiver at a time. A higher care level usually earns a higher monthly fee, and it also needs more staff and more training. A buyer wants to know whether the fee schedule matches the work the residents need, and whether the community has kept pace as residents age in place. Some communities are under-charging for care they have drifted into providing.

Memory care, if the community has a secured wing, is looked at separately. It tends to carry higher rates and higher staffing needs, and buyers examine the design of the unit, the training of the team and the history of any incidents.

Who pays and how

Payer mix decides much of the value. Private pay residents bring a rate the owner sets. Residents supported by long-term care insurance bring a predictable stream. Residents supported by a government program bring lower rates and more paperwork, and the programs differ a good deal from one state to the next. A buyer will want a breakdown by payer, along with the rate history and any rate increases passed on over the last few years.

Buyers also ask about the community fee, the deposits and the way refunds are handled when a resident leaves. These flows can create liabilities that a buyer wants to account for at closing. Our post on how to value a business gives the general picture, though a care community is valued on its net operating income and the condition of the building rather than on the owner's take-home pay.

Staffing and the team

Staffing is the largest cost and the largest risk. A buyer will ask for the roster with tenure, pay rates, certifications, shift coverage and the use of agency staff. High turnover among caregivers is a warning sign, and heavy reliance on temporary agency staff costs more and affects the quality of care. The executive director, the director of nursing or wellness, and the med techs are the people a buyer will most want to meet.

If the owner is the administrator, a buyer will have to hire one, and the state may require that person to hold a specific license. Our post on owner dependency explains why buyers pay less when the owner is the operator, and in assisted living it carries added weight because a license is involved.

Payroll classification, overtime handling and staffing ratios should all be clean. A buyer will review the records and a surprise here can lower the price quickly.

The survey record and the licensing path

Assisted living is regulated at the state level, and the survey history is one of the most important documents a buyer reads. They will ask for every inspection and survey report, any deficiency or citation, the plan of correction, and any complaint investigation. They will also want incident logs, falls, elopements, medication errors and any report made to an agency, along with how each was handled.

A clean record helps a good deal. A record with citations that were corrected and documented is workable. A record with repeated findings, a conditional license, a ban on new admissions or a pending enforcement action is a more difficult sale, and it is better to be forthcoming at the start than to have the buyer find it.

Licensing at change of ownership differs widely. In many states the buyer must apply for a new license or an approval before taking over, and the review can take months. Some states treat the license as tied to the entity, others to the operator, and the deal structure can change as a result. Rules vary by state and your attorney confirms what applies. We plan the timeline around those approvals so that the buyer, the lender and the staff all know what to expect.

The building and what transfers

Many assisted living owners also own the building, and the building can be worth more than the operating business. A buyer may purchase both, may purchase only the operation and lease the property, or may arrange a sale of the property to an investor. Our post on real estate attached to the business covers the options. If the property is leased, the lease term and the landlord's consent matter a great deal, since a care community cannot easily move.

Buyers will want a physical review of the building. They check the roof, the HVAC, the fire and life safety systems, the call system, the kitchen, the generator and the condition of the rooms. They look at how many rooms are private and how many are shared. Deferred maintenance gets priced in, and a pre-sale inspection lets you fix the small items before they become negotiating points.

Resident agreements, vendor contracts for food service, pharmacy, therapy and transportation, and any management agreement also need to be looked at. Residents and their families must be told about the sale at the right time and in the right way, and the timing is usually set with the buyer and the regulator.

What tends to sink a sale

Several reasons come up often. A survey problem that was not disclosed. Occupancy that falls once the sale becomes known. A key administrator who leaves. A license that cannot be transferred on the buyer's timeline. A building that needs far more work than expected. Rates that cannot be raised without losing residents.

Confidentiality is delicate in this field. Families get worried when they hear about a sale, and staff may leave. We market a community without naming it and ask buyers to sign a nondisclosure agreement before they see anything that identifies it. See how we market a business confidentially for the steps.

Preparing the community

Begin with the records. Gather the survey history, the incident logs, the staffing roster, the census data by month and the rate schedule. Build a second layer of management so the community does not depend on you. Get the maintenance items done. Review your rates against the care residents receive.

If you are considering selling an assisted living facility, we start with a valuation built from your own numbers and then prepare the materials a buyer will expect. At Business Advisors of America we work with owners from the first valuation through the closing.

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.