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Why Home Care Agencies Fail


home care agent worried
Worried Home Care Agent

As a business intermediary in the senior care industry, I see many sales and purchase transactions of home care agencies. Well-run and smartly positioned agencies sell at a premium. Poorly run agencies rarely get sold. Eventually, poorly managed agencies run out of time and fail. Why do some agencies that start out with high hopes and aspirations tragically close their doors? Listed below are some characteristics of failed home care agencies:


  • Customer Concentration

    • Failed home care agencies that suffer from a narrow client base find themselves victims to changes in buyer behavior. Their clients find better offers and poof! Their primary clients are gone and so is 10% to 20% of their gross receipts.

  • Thin Service Offerings

    • Poor performing agencies offer only a few services. They fail to leverage their existing client base. As their clients' needs change, these agencies do not adapt. Eventually, client migrate to other competitors that better satisfy their needs.

  • Poor Branding and Lack of Differentiation

    • Failed home care agencies offer generic services to the public. Their service offerings have become commodities, nothing special. These agencies do not distinguish themselves in the market. Client do not recognized what makes these agencies unique beside lower prices. There is no recognized linkage between the agency and patient quality of care.

  • Compete Solely on Price

    • Poor performing agencies compete on price not service quality. They focus on billable hours rather than patient quality of care. They do basic personal care duties and hope to do more of the same.

  • Destructive Work Environment and Culture

    • Failed home care agencies have toxic work environments. Because they compete on price, they spend little or no money on improving the work environment. Little time is spent on training and mentoring. Wages are usually at or lower than what the competition pays.

  • Low Caregiver Retention

    • Low wages, long hours, little mentoring, no training, and toxic workplace lead to high caregiver turnover.

  • Lack of Cost Controls and Visibility

    • Poorly managed agencies do not understand (or track) their operating costs. How much does it cost to attract a client? What is the total lifetime value of a client? What does it cost to retain a caregiver? What are the agencies fixed costs? Variable costs? Are these cost metrics in line with industry standards? If not, why? What activity is needed to break even each month?

  • No Working Capital or Cash Reserves

    • Failing home care agencies do not have sufficient cash to timely pay employees and their bills. Many start their operations having insufficient cash reserves. They quickly get behind in paying bills and have a hard time holding on to cash. They have no sustainable source of funds.

  • High Debt and Little Equity

    • Some failed home care agencies relied heavily on borrowed money. They put very little of their own cash into the operation. The problem with debt is that it must be repaid. Bankers are not patient when it come to getting repaid. Once a bank payment is missed, the bank may foreclose on the loan. When that happens, the agency is bankrupt and out of business.

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