When we start a new home health, home care or hospice business and are experiencing the excitement and exhilaration of the new venture, we seldom remember that we are building beyond the near future. We are also building for the time we retire and/or sell our agency or have a succession plan to pass it to our children. The best time to think about what your home health, home care or hospice agency will be worth is at the very beginning.
When starting up any business, the business fundamentals — matters that must be tended to before you do anything else – need to be hammered out first.
What do you want the ultimate outcome for your successful home health, home care or hospice agency start-up to be? Is this going to be your retirement or a legacy for your children? For instance, if it is for retirement and you feel that you will need several million in your retirement account when you sell the agency, you will want to build an agency that is structurally sound, operationally efficient, with cash flow and incomes to meet that goal. So how do you do that?
The first decision to attend to is the geographic area you will serve. Targeting too small an area can seriously limit your growth potential, while making it too large can make it unmanageable. You must do your due diligence in your demographic search of the target area to determine if there is enough potential wealth and population to make the business possible. There are numerous demographic searches that can be used to determine whether you are locating your service area appropriately. Zipskinny is a good one, but state and county demographics can also provide you with good information. You will want to look at the average income, the age groups and sizes of each, the distribution of areas of work, e.g., management/professional, service, sales/office, farming/fishing/ forestry, construction, production, etc. All of this will give you a picture of what the area looks like and therefore what the potential opportunities are for your home health, hospice or private pay agency.
Another major area you must consider is how you will structure your business. Is it to be a C Corporation, S Corporation, Partnership, LLC, etc.? How you structure your business has long term implications and must be done with forethought. For many, the decision about what kind of a corporation to establish can be confusing. The wisest thing to do is to consult with an attorney who deals in corporate structure to determine which one best meets your needs and those going forward. Get the pros and cons of each type and then make your decision. It is complicated and expensive to change structure once it is established, so choose carefully.
Once you have decided on a structure, make sure you are following all the rules that apply to that structure, e.g., board meetings with minutes kept and filed in the event that you need to prove the meetings. Make sure that taxes are paid as per the corporate structure and that business expenses are kept with the business and not mixed with your personal finances. Why do you need to do all this? When you are planning on selling, everything about the agency comes under scrutiny, and failures in any one area can affect the overall price you will get for your agency, not to mention the exposure to government interventions.
After you have decided on the corporate structure, the next big decision is where to open the business. As the old saying goes, “location, location, location” has big implications. Starting out, you may find that your home works; however, as your business grows, you will need a commercial space that reflects the image of your agency as you want to portray it to the community. You will need space not only for your internal staff, but for meetings of the entire group of employees, both internal and caregiving. Finding the right space can sometimes be more difficult than making the decision on your corporate structure. If your goal is to eventually sell the agency and use the proceeds for retirement, then think like a potential buyer when you are locating your business. What would attract you to the office location? Would you think the agency is prosperous, or just getting by? Of course, the financial health of the organization is the ultimate decision maker, but on a subconscious level, appearances play a big role in the making of the deal.
The ultimate goal of any business is to build value. When you start out, take your time to do it right. If you are considering starting up a home health, hospice or private pay agency and need some assistance, Kenyon HomeCare Consulting can provide the guidance and assistance needed to start it right. Contact us.