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

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

2yrs ago

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

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 onlyredactedhrs/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!

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reply by a professional 2yrs ago
from Harvard University in Lynbrook, NY 11563, USA

You mean a corp that is an S corp (C corp can't be S corp, a corp can be either a C or an S corp)! As long as you're compliant with the S corp rules, owning an S corp (v. a partnership) can be somewhat tax beneficial actually since you won't be self-employment tax on distributions and have more flex to maximize the pass thru deduction, so aside from asset depreciation questions, financially it could be slightly beneficial.

The bigger questions relate to how you're going to own it though. You can't have any entity shareholders (other than single member LLCs) or you void the S corp - so no partnership (which includes multi-member LLCs) or corporate shareholders. You also can't have different classes of equity - so investors probably can't get a step up for example - as all shares need to be the same economically (other than as to ownership percentage).

At this point we're kind of veering into specific advice - I suggest you talk to someone before submitting your LOI. Happy to chat if you'd like - can just be a limited engagement just to talk about this. redacted is not formal legal advice.

reply by an investor 2yrs ago
from Harvard University in Cambridge, MA, USA

I wrote a post about this a year or so back: redacted

The bottom line is that it's whatever the market holds. I have seen deals giving 10% of common to investors, and those at 50%. It's all about the strength of the business, searcher, and the momentum.