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home care business valuation – Partners31: Specializing in Health and Human Services http://partners31.com We're Really Good At What We Do! Wed, 13 Apr 2016 23:07:11 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.3 http://partners31.com/wp-content/uploads/2011/09/cropped-Janet-FINAL-LOGO-no-bar-32x32.jpg home care business valuation – Partners31: Specializing in Health and Human Services http://partners31.com 32 32 Business Senses, USE Them for Systemizing http://partners31.com/consultant-intellectual-disabilities/business-senses-use-systemizing/ http://partners31.com/consultant-intellectual-disabilities/business-senses-use-systemizing/#respond Tue, 22 Apr 2014 01:58:13 +0000 http://partners31.com/?p=1753   As a business owner, would you like to eliminate some stress from your life?  Consider having systems in place.  Documenting what really works can make you, your employees, and your processes more efficient and effective.   People want to work with companies that treat them well and they want to know what their job responsibilities […]

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little executiveAs a business owner, would you like to eliminate some stress from your life?  Consider having systems in place.  Documenting what really works can make you, your employees, and your processes more efficient and effective.   People want to work with companies that treat them well and they want to know what their job responsibilities are.  Having systems in place will help satisfy these needs.

So how do you go about getting these systems identified and defined?  One way to start is to use your senses.  You may think I am talking about “common” sense.  But I’m not.  I mean use your senses, literally—sight, smell, sound, taste, and touch. Get in the practice of exercising one of your senses each day when you are in your office.

Today let’s focus on sound.  Take 3-4 minutes somewhere inconspicuous in your office and close your eyes and listen.  What do you hear?  How do you feel about the environment, the voices, the phones ringing, the conversations, the words, the tones?  Do you hear any annoying sounds, distractions, alarms, music?

Now open your eyes and jot down your thoughts on what you heard.

How do you feel about what you heard?  Did you hear an office purring like a cat or screeching like fingernails across a chalkboard?

Listening to what you hear can be a big clue as to what environment you have in your office.  If what you heard made you feel awesome, let your team know.  If there is room for improvement, be clear, identify the problems and create a solution.  Communicate with your team and make changes when needed.

Please try this with some of your other senses.  It’s a great exercise to Get Your Business FIT, and ready to go when you are!

 

 

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Building Home Care Value with Tactical Planning http://partners31.com/business-planning/building-home-care-value-with-tactical-planning/ http://partners31.com/business-planning/building-home-care-value-with-tactical-planning/#respond Thu, 13 Dec 2012 15:10:15 +0000 http://partners31.com/?p=915 Building value in your home care business and setting goals for exit planning does not happen by accident.  Partners 31 helps you develop your overall strategy as well as the specific tactics, the means by which you execute that strategy, necessary to achieve your goals. Let’s take the example of “Stuart,” a typical home care […]

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Tactical PlanningBuilding value in your home care business and setting goals for exit planning does not happen by accident.  Partners 31 helps you develop your overall strategy as well as the specific tactics, the means by which you execute that strategy, necessary to achieve your goals.

Let’s take the example of “Stuart,” a typical home care business owner who needed help building business value but wasn’t sure where to begin.  We started by asking a deceptively simple question:  what specific business activities do you LEAST enjoy?  Stuart’s list included placing collection calls, balancing the books, paying bills, and hiring and firing employees.  Obviously, these tasks are business critical, and your own list may include other activities no less crucial.

It might seem counterintuitive, but we suggested that Stuart STOP doing these tasks.  Instead, we asked whether he could identify employees who could handle the activities at least as well as Stuart or develop systems and procedures to ensure the tasks received the proper focus.  His alternative was to do everything himself, working longer and harder on the tasks he least enjoyed.

All home health care owners have specific strengths, aptitudes, and interests they bring to their home health business.  Naturally, they also have areas where they are weaker, have less aptitude, and interests on which they’d rather focus.  Stuart found that he could become MORE efficient by doing LESS.

Now let’s examine several areas we must consider and questions we must answer when developing your strategy and tactics:

*Diversifying your Customer Base

*Expanding Sales

*Defining and Measuring Success

*Developing Consistent Sales and Marketing Messages

*Planning your Taxes

Diversifying your Customer Base–What percentage of you sales or income are attributable to each customer?  Does one client account for a disproportionate amount of sales over the past year?  If you lack diversity in your customer base, it will be difficult to convince potential home care mergers and acquisitions brokers and buyers of your proper business value and future prospects.

Expanding Sales — Are you doing everything possible to build home care valuations through existing customers?  Have you recently explored different options to increase market penetration?

Defining and Measuring Success– How do you measure home health company success?

How do you achieve accountability?  Is it through the consistent achievement of annual sales targets or by successfully penetrating especially difficult markets? To build home care business valuations and meet your exit planning goals, to set appropriate base incentives for compensation, to establish growth targets you must first be able to define and measure success.  This is particularly important when working with home care business brokers and mergers and acquisitions home care entities.

Developing Consistent Sales and Marketing Messages–Have you effectively communicated your home care company’s purpose and goals to your employees?  Can all, or even most, employees accurately describe your competitive advantage?  Many home health owners mistakenly believe they have!  Crafting a consistent sales and marketing message ensures all employees are focused on company goals.

Planning your Taxes–No tactical planning discussion would be complete without mentioning taxes.  Wise home care business owners do everything possible to legally build value by avoiding unnecessary taxation and minimizing existing tax obligations.  Your tax advisors can recommend appropriate entity structures, how to use multiple structures to minimize taxes, or how to choose the proper location to take advantage of state and local tax codes.

These five examples are by no means comprehensive; they are just a few examples of the many ways Partners 31 can help you plan your business strategy and execute effective tactics.  Our advisors can assist you in organizing and focusing your efforts to achieve all your exit planning goals

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Cash is King http://partners31.com/business-planning/cash-flow-is-king/ http://partners31.com/business-planning/cash-flow-is-king/#respond Thu, 08 Nov 2012 17:56:28 +0000 http://partners31.com/?p=1278 Cash is King, but  for the cash buyer, a slight modification to our saying is required: “Cash Flow is King.” Our advisors often hear from business owners who say, “My friend sold her business for a six times multiple. Can I get the same type of multiple for MY business?” To understand why the answer […]

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cash flow is king when selling your businessCash is King, but  for the cash buyer, a slight modification to our saying is required: “Cash Flow is King.”

Our advisors often hear from business owners who say, “My friend sold her business for a six times multiple. Can I get the same type of multiple for MY business?” To understand why the answer is not a simple “yes” or “no,” we need to know what exactly is being multiplied.

Cash of course is our favorite thing to multiply. Investment bankers, sellers, and mergers and acquisition advisors of all kinds have a favorite phrase: “Cash is King.” Cash greatly reduces a seller’s risk in the transaction.

But for the cash buyer, a slight modification to our saying is required: “Cash Flow is King.” The buyer wants to know exactly how much cash the business is producing. In fact, few cash buyers are willing to part with their money unless they see a proven, and increasing, stream of cash flowing from the business.

The balance of our discussion is devoted to defining cash flow and examining its importance for third-party cash buyers who are interested in your business.

The Importance of Cash Flow

During the heyday of consolidation, companies used their own publicly-traded stock to aggressively pursue and acquire similar companies. This led to payments of multiples of earnings–sometimes of future earnings–that in our more sober climate seem stratospheric. Mergers and acquisitions activity is down as much as 80% from 1999. That frenetic period of consolidation is over.

Today’s buyers may still be anxious to acquire companies, but they are looking for “good” companies–those with increasing cash flow, solid growth potential, and strong fundamentals (including the management team and operating systems). These characteristics have always been important, but given the high rate of failure of recent mergers and acquisitions, cash flow has never been so important. Strong cash flow reduces a buyer’s risk, so for many sellers getting “six times multiple” of cash flow depends greatly on what exactly is meant by “cash flow.”

The Definition of Cash Flow

Another favorite, albeit less succinct, phrase of investment bankers is, “We can get you five or six times multiple of your cash flow as a purchase price for your business.” All you have to do is let THEM define “cash flow.” The devil in this case is in the definition. There are several definitions or measures of cash flow, each with significant differences. Typical measures of cash flow include:

EBIT: Earnings Before Interest and Taxes

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization

True Cash Flow: The amount of pre-tax money distributed to owners via salary, bonus, company distributions such as S-distributions, and rental payments in excess of fair market rental value of equipment or buildings used in the business.

Each of these measures of cash flow can produce a different cash flow amount, and you can add to these measures the need to recast cash flow by using “add backs” such as excess rents, salary, or bonuses paid to the owners and their families.

This brings us back to our original questions. Can you get six times multiple when you sell your business? Sure. But, as we have explained, it depends greatly on how you define cash flow. To accurately determine which measurement is appropriate for your business, look first to the marketplace’s measurement for insider sellers. This “true cash flow” measurement reflects what your potential buyers must use to pay for your business.

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Annual Planning Meeting for Home Health Care Business Owners http://partners31.com/business-planning/annual-planning-meeting-for-home-health-care-business-owners/ http://partners31.com/business-planning/annual-planning-meeting-for-home-health-care-business-owners/#respond Tue, 25 Sep 2012 21:41:59 +0000 http://partners31.com/?p=1251 The annual planning meeting…Followers of our blog understand that Exit Planning is an ongoing process that begins with establishing your exit objectives and home care business valuation and ends with your successful exit. Along the way, you and your team of advisors focus on increasing and preserving business value and protecting business value from creditors. […]

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Make Time for Annual Planning Meeting

Annual meetings address your ultimate goal: leaving your business in style

The annual planning meeting…Followers of our blog understand that Exit Planning is an ongoing process that begins with establishing your exit objectives and home care business valuation and ends with your successful exit. Along the way, you and your team of advisors focus on increasing and preserving business value and protecting business value from creditors. You will also be making contingency plans in case something happens to you before your planned exit. And finally, you will be coordinating your business plan with your estate plan to protect your family.

This is a lot to consider–and to do! Some business owners keep putting it off until “later” or simply allow it to fall through the cracks. How do you avoid that trap?

The Annual Planning Meeting is an elegant solution that gives structure to your entire Exit Planning process. You may decide to meet with you advisors more often, depending on your needs, but all owners actively pursuing a successful exit should meet at least annually. So how can this meeting (or meetings) keep you and your advisors focused on your exit objectives?

Each year, you and your advisors–usually an attorney, insurance/financial professional, and CPA–will meet and go over your agenda (see below for a typical Annual Planning Agenda). Some owners hesitate to bring their advisors together because of cost-prohibitive hourly fees. Many advisors are sensitive to this and may reduce their rates for the meeting. They understand that the Annual Meeting is their chance to solidify their relationship with you and your other advisors. Ultimately, your success is their success.

The Agenda

Each attendee should receive the Agenda several weeks in advance in order to prepare. Typically, the Agenda includes

Your Objectives–Have yours changed since the last meeting? Are there new objectives for your team to focus upon?

Business Value–Is there an accurate valuation in place, and does it need to be reviewed?

Preserving Value–Is the company doing everything possible to minimize tax liability?

Promoting Value–Which areas need improvement to maximize your home care valuation? This topic often includes a discussion of how to motivate key employees.

Lifetime Transfer Objectives–Are you on track for your company transfer (to an insider or outside third party)?

Business Continuity Planning–If you die or become disabled, what must be done for your business to continue despite the loss of the following: ownership, financial resources, key talent, and very possibly employees and customers?

Wealth Preservation Planning--What can you do to minimize estate taxes, treat each child fairly, provide long-term financial security for your family, and–if applicable–transfer ownership to one or more child?

As you can see, this meeting is highly owner-driven. Each Agenda item is designed to address your ultimate goal: leaving your business in style. To make this possible, each advisor will leave the meeting with clear marching orders for the rest of the year. And because each is present, all benefit from the cumulative expertise.

If you need help planning and executing your Annual Meetings, contact us and we can help create a detailed and customized agenda for your meeting as well as answer any further questions you might have.

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Identifying Home Healthcare Business Fundamentals and Putting Them in Order http://partners31.com/business-ownership/identifying-home-healthcare-business-fundamentals-and-putting-them-in-order/ http://partners31.com/business-ownership/identifying-home-healthcare-business-fundamentals-and-putting-them-in-order/#respond Mon, 18 Jun 2012 18:59:33 +0000 http://partners31.com/?p=885 As we continue discussing how to close the gap between what you have and what you need, let’s look at business fundamentals and how to address them to build business value.  Business fundamentals are those basic housekeeping tasks that reduce your risk.  We want to put into place mechanisms to protect business value. Business fundamentals […]

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home care business fundamentals

Make sure all your business fundamentals are in order

As we continue discussing how to close the gap between what you have and what you need, let’s look at business fundamentals and how to address them to build business value.  Business fundamentals are those basic housekeeping tasks that reduce your risk.  We want to put into place mechanisms to protect business value.

Business fundamentals are divided into four key areas:

1.            Ownership rights and responsibilities

2.            Facilities management

3.            Competitors

4.            Employee errors

 Ownership Rights and Responsibilities

Are your corporate records in order? Is each share of stock documented? If there are co-owners, are the rights and responsibilities of each clearly documented, understood, and implemented? Do you know what will happen if one owner becomes ill or dies? Has the company paid for any perks for family members?

Minimize risk of loss from facilities management

To minimize risk through facilities management, you must know in which areas your company is vulnerable to loss in its activities. Vulnerable areas might be in: services, inventory, publishing, printing, duplication, records management and maintenance, or research and development. You may also need to take a look at your operating space – especially if it has grown on an as-needed basis.

Minimize risk of loss from competitors

Have you taken time lately to identify all of your direct and indirect home health care competitors? Have you evaluated them in terms of their ability to threaten your organization? Can you avoid future threats from competitors?

Minimize risk of loss from employee errors

In the past 12 months, has an employee made an error that cost your company significant money? How did that error occur? What measures can be put in place to prevent similar errors in the future?

Business fundamentals are all about reducing risk for you and for any future mergers and acquisitions brokers or buyers.  I hope you find this information helpful and motivating. To get started on your value-building plan, please contact me

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Selling to Insiders – How Much Can you Sell your Home Care Business for? http://partners31.com/business-ownership/selling-to-insiders-how-much-can-you-sell-your-home-care-business-for/ http://partners31.com/business-ownership/selling-to-insiders-how-much-can-you-sell-your-home-care-business-for/#respond Mon, 09 Apr 2012 21:44:06 +0000 http://partners31.com/?p=971 If you wish to transfer your business to an insider(e.g. employees, children, co-owners) and want to receive full value, then generally that value cannot exceed four times your true cash flow.  We define “true cash flow” as the pre-tax money distributed to owners via salary, bonuses, company distributions such as S-distributions, and all rental payments […]

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selling your homecare business

You need to define "true cash flow"

If you wish to transfer your business to an insider(e.g. employees, children, co-owners) and want to receive full value, then generally that value cannot exceed four times your true cash flow.  We define “true cash flow” as the pre-tax money distributed to owners via salary, bonuses, company distributions such as S-distributions, and all rental payments exceeding the fair market rental value of business buildings or equipment.  Let’s see how true cash flow determines insider sale price.

Christine Roberts desired to sell her three floral shops to three store managers.  Her total true cash flow was $250,000 per year and she wanted 1.5 million, pre-tax, for the three stores, which grossed approximately 1.5 million total.  Not only did this amount meet her financial exit planning objectives, but one times gross revenue was a fair business valuation.

Even if Christine’s employees want to buy her business, which is a huge assumption we will examine in future posts, let’s look at some reasons why her prospects may be limited.

Her employees cannot afford the payments, which must come from business proceeds, nor can they borrow enough without proper exit planning.  The employees will pay Christine $150,000 per year ($250,000 post-sale cash flow minus 40% combined taxes = $150,000)*.  Not only must Christine pay capital gains on the $150,000, but it will also take her employees TEN years to make full payment.  Would any sane business owner agree to those terms?  And let’s not forget interest.  Assuming a long-term promissory note for 1.5 million at 8%, compounding monthly, and limiting total payments to $150,000, it would take just over ten years to pay!

The bottom line is that true cash flow cannot support Christine’s desired purchase price.  If she lowers her price to $1 million, the timeframe falls to under seven years.  If this is still too long, there are many other exit planning tools that can reduce the time or increase her asking price.  How?  Our mergers and acquisitions advisors at Partners31 can help answer that question, and many others.  Remember that your future cash flow determines, and limits, what your business receives from insider sales.

*Taxes vary depending upon applicable federal and state rates

 

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