Buying $2.5m rev (private payer) in-home care provider (C-Corp)

April 16, 2024

by a searcher from Northwestern University - Kellogg School of Management in San Rafael, CA, USA

Dear all, as a self-funded (SBA) searcher, I am looking at a C-Corp structured $2.5m topline (private payer only) in-home care provider (activities of daily living) that serves a wealthy clientele.. If you have purchased or studied such a business and have suggestions for key lines of inquiry or the below I would welcome it.

I'm currently assessing:

1. How stabilized G&A should look and where its 33% EBITDA margins should stabilize (run out of founder's home; founder ran it solo until a year ago when his sister took on scheduling yet he claims he is working only###-###-#### hrs/wk). I see 10-20% EBITDA margins on home healthcare firms (that staff nurses & take insurance by contrast). 2. Optimal composition of admin / leadership team and how to transition when all back office / leadership departs with owner. 3. Whether office space adds value. 4. Ways in which people have improved these businesses with tech or management technique. 5. Incremental costs & complexities to buying a C-Corp (taxed as S-Corp).
6. Regulatory risks I may not grasp as an industry outsider.

Thanks so much!

Reply by a searcher
from Johns Hopkins University in Atlanta, GA, USA

^redacted‌ we just achieved licensure to get into private home care. We launch Monday. In our analyses, I spoke with quite a few owners and have worked with a consulting firm to build up a-15% good CF/pro forma lite set of statements. We're in GA, looks like you're in CA. The average bill rate there is going to run around $40/hour, so you're probably talking around 60 clients? Regardless, those margins are right in line with what we'd see in a sole proprietorship (meaning no in-office staff), as your GM should run between 36% and 42% and there's no real overhead until you hire staff. You're going to need a community marketing manager and a staffing manager, probably for every $3M in top line (roughly###-###-#### clients). At the end of the day, you'll probably want to target NI in the 12-15% range (I heard of larger agencies running up toward the 20% number, so that should give you a sense for the G&A requirements over time. It all depends on how hands-on you want to be in the business. Happy to jump on a call and discuss and/or put you in touch with the group I've been working with. LMK. redacted

Reply by a professional
from Harvard University in Lynbrook, NY 11563, USA

Sounds like you're considering a stock deal if you're asking about corporate structure. First to clear up your language, a corp is either a C corp (taxed at the corp level) or an S corp (taxed at shareholder level for the most part). Seems like you have an S corp.

S corps have pros and cons. If you're buying one, you probably want to have the buyer agree to make a 336(e) election so that it's treated for tax purposes as an asset purchase and you get depreciation. Otherwise, you will take seller's basis in the assets and probably not have much depreciation. (In an S corp, seller may not be very effected by a 336(e) election.)

If you do make the election, and the entity is an LLC S corp (an LLC can be treated for tax purposes as an S corp), good chance you can elect to remove the S corp status immediately upon purchase if you really want to.

The other thing to make sure of in diligence is that the seller didn't ruin the S corp by not following the rules and if he did, make sure you have a good indemnity.

Not super complicated, but important to walk through with your lawyer ultimately.
Fine to follow up at redacted

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