Eight Questions You Should Ask Before Buying a Nursing Agency or Nursing Home for Sale

If you are looking for a recession-proof investment, buying a nursing home or nursing agency for sale currently makes a lot of sense. While consumers tighten their budgets in many areas, the need for independent healthcare provision isn’t going to go away any time soon. Indeed, the demographics of baby boomers coming up to retirement and ever increasing life expectancy means that the potential client base for nursing homes and agencies is steadily rising. In addition, government cutbacks are reported to be already impacting on waiting times for NHS provided treatment, driving many people to look at private medical options. This in turn is creating more business for private healthcare firms, and an increase in demand for nursing staff of all kinds in the private sector – supplied, of course, by nursing agencies.But although the top level business case for buying a nursing agency or nursing home may be solid, choosing a specific nursing agency for sale is not so simple. Every nursing agency and nursing home for sale is different in terms of its client base, its funding sources, its premises, its management and its staff. So it is important to understand the particular features of any home or agency you may be considering buying, to ensure it will be a good fit for your requirements. Here are the eight questions you must ask before buying a nursing home or nursing agency for sale.Why is This Nursing Home or Nursing Agency for Sale? Knowing what is motivating the vendors to place their nursing home or nursing agency for sale right now can give you a lot of clues about the current state of the business. Just as you are interested in nursing agencies or nursing homes as a business investment, so will the vendors before you. (Even owners motivated by the desire to provide excellent care will need to have made sure that the business is sustainable and can provide a living income.) Motivation to sell can be of three main types:The business is doing well and the vendor wants to realise the increase in value.The business is doing badly and the vendor needs to sell.The vendor wants to retire and use the proceeds from the sale to fund their retirement.All other things being equal, a business which is performing well will be a more attractive investment than one which is not. But it is not necessarily bad for you if a particular nursing agency or nursing home for sale isn’t performing well financially. Sometimes this can represent a bargain investment, provided you fully understand why the business is struggling and have the ability and vision to turn things around. From an investment point of view, this type of sale can represent the biggest opportunity for value increase – but it will require experience and expertise to know what needs fixing. If you are a hands-off investor with no experience of nursing homes and agencies, an underperforming business should be avoided in favour of one which is already financially successful.What Are its Income Sources?Nursing homes and agencies in the UK can receive income from three main sources:Direct from the NHS (e.g. an NHS hospital pays for temporary nursing cover)Local Authority (e.g. a local authority assesses someone as requiring care in a nursing home and pays for that care directly)Privately (e.g. an individual arranges for domiciliary care to be provided in their home, or a private health company wants to recruit nursing staff)As a business investor you need to know the current mix of income sources and whether there is over-reliance on one type. For instance, many nursing homes flourished over the past decade or so based on local authorities’ legal obligation to provide residential care. Many local authorities are now reassessing people against new criteria and withdrawing funding, as a way of cutting expenditure. Nursing homes which have not also built up a healthy private client base, with associated marketing to support it, may find their funding position looking shaky as a result.What is its Reputation with Clients?What do clients and their families think about the agency or home? When it comes to personal care services such as residential care or domiciliary care, families place considerable importance on the experience their relative is getting, at least as much as the technical quality of medical care or the cost of the service. Put simply, even when changes in the economic landscape may be creating funding uncertainties for nursing homes and agencies, businesses which are loved by customers will have the easiest time in attracting new clients and maintaining a healthy business.What is its Client Base?Apart from income sources, what type of customer does the nursing home or nursing agency cater for? This will indicate the likely size of your potential customer base (important if you have plans for growing the business) as well as funding stability. It may also affect how well the new acquisition fits into an existing portfolio. For instance, if you already own a chain of residential homes for the elderly, a home currently catering for young adults with learning disabilities may not fit the current brand as well a home specialising in dementia care. The client base will also determine the skills needed to run it successfully – so if you intend to be an owner-manager it’s important to choose a nursing home for sale which matches your background and skills.Is it Profitable, and if so Why / Why Not?You must find out the turnover and profits of the current business, before and after tax. This is normally disclosed as a matter of course by the vendor and is usually verified prior to completion of a sale. But it is more important to find out why the business is or is not profitable, than to look just at the bottom line. For instance, a lack of profits may occur in a well run home or agency but where financial management has been weak (this might occur in an independently run home where the owner is more focused on care issues than running a sound business). Equally, a profitable business may be the result of a vendor having an eye to selling and minimising investment in care and maximising profits.How Vendor-Dependent Is It?How well could the business continue to run when the vendor is no longer there? Does the business have a strong management team in place who can continue to run the business in the absence of the owner? If you want to be a hands-on owner, taking over the day to day running of the business, then this factor may not matter so much. But if you want to be a hands-off investor, you will either need a team already in place, or you will need to appoint a manager on your behalf.What Development / Expansion Potential Does it Have?Assuming you are look at nursing agencies and nursing homes for sale as an investment opportunity, you will want to know what scope there is for adding value to the business after you have bought it. In the case of a nursing home, can the value of the premises themselves be increased through refurbishment, or is there scope to increase capacity? In the case of a nursing agency, could business be increased by bringing in new clients? Or could the range of services be expanded (e.g. a nursing agency deciding to also provide non-medical domiciliary care)?Is it Independent or Franchise?Some nursing agencies and homes are fully independent, while others operate as part of a franchise. Buying a franchise will be less expensive, and may appeal to those with appropriate nursing background and skills but with less cash to invest – but the scope for adding value or increasing personal income will be strictly limited. Buying an independent business will cost more – often including the price of the premises – but you will own everything and will have a far greater degree of control over how the business is run. Perhaps more importantly from an investment point of view, you will benefit from any increase in income and value you are able to generate.Using a Business Broker to Assess Businesses for SaleFinding out this level of detail about a nursing home or nursing agency for sale can be difficult, and may not be completely revealed until negotiations are well advanced. It is therefore useful to use the services of a business broker who is better placed to know these details or to find them out on your behalf. A broker who is representing a nursing agency or nursing home for sale (i.e. the home or agency has asked the broker to find a buyer) should have determined this type of information already in order to understand the business and find a suitable buyer.But where information is not yet known, it is often far easier to make enquiries via a broker than to ask a vendor directly. Being able to ask these questions and to trust the information that comes back can help prevent time being wasted on unsuitable businesses. More importantly, it should prevent you from completing a deal only to find out later the true position of the business.