Advisory Services

January 24, 2020

The Financial Realities Of Owning An Assisted Living Facility

operating an assisted living facility

The dream of owning and operating an assisted living facility may bring visions of waiting lines and dollar signs. Every day we hear about the graying of America. Yes, all those baby boomers are aging and many are looking for places where they can retain their mobility but get assistance with certain daily activities such as bathing or meal preparation. It is an enticing dream-one that appears to be a gold mine on the surface. Despite what you may think there are several things you need to know and understand before jumping into the business of owning and operating an assisted living facility.

Assisted living homes operate differently from nursing homes. Nursing homes are federally regulated but assisted living homes are generally free from most federal regulations. On the other hand, they are subject to state regulations. So you need to be familiar with all state standards and regulations.

The first step to financial success for this type of business is understanding what type of facility you plan to open. Living assistance facilities can range from a four-bedroom home to large communities with hundreds of single or double occupancy rooms. The difference between a small home and large community is far greater than just the size. They demand different business models entirely. When researching for your business make certain your research applies specifically to the size facility you want to open; otherwise, you my end up drawing wrong conclusions from the data you collected and that can lead to financial disaster.

The three primary risks for opening an independent assisted living facility are labor costs, prospect pool and heavy competition. Let’s examine these three risks a little more thoroughly.

Prospect Pool

The actual costs to be able to live in an assisted living facility are high. Normally rates run anywhere from $3,000.00 a month on up. Most seniors can’t afford that kind of monthly fee for extended periods of time (years) so your actual prospect pool narrows considerably when you apply financial criteria to the age pool. The reality is that most seniors in living assisted facilities are there for short term help.

Heavy Competition

Because the prospect pool for assisted living is limited that increases the competition to attract and retain residents. On average a prospective resident normally visits and compares anywhere from two to ten homes before making a decision on where to live. That means you always have to be in a sales mode-always open and on top of your game in order to close the deal. Given that most residents are short-term and that turnovers rates are high in this industry, your financial stability rests on your sales acumen and the condition of your property and services. Many owners are in the medical field and selling does not come naturally.

Adding to your competitive woes is the fact that most of the large-scale assisted living companies are public companies, REITS (Real Estate Investment Trusts), or owned by hedge funds. That means they have very deep pockets. It can be almost impossible to compete against them successfully. Their facilities tend to be newer and they often separate out or contract out the services separate from the actual real estate. It is important to understand their business models and how you can differentiate your business even if they are not direct competition in terms of size they are still competing for the same prospect pool and demographic.

Labor Costs

Not surprisingly, labor costs are the single biggest cost an assisted living facility faces. It requires 24- hour a day staffing, 7 days a week, and employee turnover in this industry is very high. Many small home assisted living businesses rely on family to help minimize costs but then you need to be prepared to commit yourself and your family members 100% and recognize that you will be living and breathing the business 24-hours a day for possibly years.

In summary there are many aspects of owning and operating an assisted living facility you need to investigate thoroughly to understand the financial realities of this type of business. Before you put together your business plan you should have thorough research about:

  • Your local demographics including Income, net worth, age, population growth/loss and the number of other assisted living facilities in operation or licensed to do business.
  • State requirements and regulations
  • Licensing
  • Average cost for assisted living in your area (competitive analysis)
  • Turnover rates
  • Sales techniques/closing
  • Daily, monthly and annual operational costs
  • Labor Costs
  • Referral costs
  • Financing (how will you finance your business)
  • Average time to profitability

Although it may sound daunting this industry can be financially rewarding as long as you do the research, competitive analysis and have a solid business plan in place and impeccable record-keeping.

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