Key Points for Brokers & Sellers when selling Residential Care Facilities for the Elderly (RCFEs)
Residential Care Facilities for the Elderly (RCFEs) in California are a great business model for meeting the needs of our aging population. It is estimated that by 2040, about one in five Americans will be age 65 or older (Urban.org) which means that there will continue to exist a need for senior care services. RCFEs are a non-skilled setting, meaning there are no requirements for licensed staff to be a part of the business model with the main focus being on providing a positive quality of life within a safe environment via non-skilled caregivers.
As business brokers, when we work with our RCFE sellers, we often are given the task of educating our owners for their sale. One the biggest mistakes that our sellers make is not being able to account for their financial position over the past three years and year to date. It is imperative that our RCFE sellers understand that keeping an efficient accounting – bookkeeping practice is essential. The profit and loss statement, the balance sheet and the cash flow report allow us as business brokers to be able to justify an accountable sell price.
Next, we need to understand the property and whether it is being leased from a third party or whether the RCFE seller is the property owner. When we have a landlord, one of the first things that the seller and the broker need to assess is the current landlord mindset when it comes a rental agreement. We need to be aware of the current rental agreement, the existing rental market and the landlord’s subjective standing on where they want to take their lease terms with our new RCFE buyer. This conversation should be had sooner than later and it will depend on the certain variables such as the seriousness of the seller to sell their business, the seriousness of the buyer and the landlord’s overall flexibility. If the RCFE seller is the property owner, addressing realistic market rental rates are essential. An unrealistic set of lease terms will only scare off potential buyers and are deal breakers.
License. We make it a practice of asking our buyers to procure their RCFE Administrator’s license ahead of time. We explain to the buyer’s that by having their license ahead of time that it adds credibility to them as buyers as well as to create a much smoother transition once the sale is consummated. The existing RCFE owner will also have their own licenses in place for both their facility and their own RCFE Administrator – both of which need to be part of the buyer’s due diligence.
Finally, a few other ideas for brokers to be mindful of: existing bed rents, employee turnover, current RCFE patient demographics, existing owner’s relationship with their Licensing Program Analyst (LPA) and their Ombudsman, current employee HR files, up to date resident file documents, and more.
Healthcare Biz Brokers, Inc. is a niche-based healthcare business brokerage located in Southern California with clients throughout the state of California. We assist our clients with formal valuations, selling strategies, lead generation, and more. If you have any questions, call us at (818) 731-7173 or email us at info@HealthcareBizBrokers.com.