The financials of a successful home care business

Financials of a successful home care business

 

As a health care professional, talking about the $s isn't my favourite thing.

I'd much rather be building care plans, meeting caregivers, working scheduling magic and managing client satisfaction.

But I've learned that in order to be free to do all of those things I love I have to have the financials set up in a way that makes sure the business is healthy.

The good news is that it turns out that managing the financials is actually much easier than you might think.  And to prove it to you I'm going to tell you everything you need to know to be successful in just 800 words!  So let's dive in!

Managing home care business financials is an easy 2 step process

  • Step #1 - understand the 'levers' that you pull to make the numbers work
  • Step #2 - pull the 'levers' in the right way to make sure the financials are healthy and the business earns a normal profit.

What are the 'levers' of a home care business?

There are only 3 levers you need to make your business the worry-free, profitable business that it should be.

Lever #1 - Pricing

Pricing is what you charge for each of your services per hour or per visit.  But pricing is more than just the sticker price.  It's really the pot of money that is the resource you use to pay for everything else in your business. 

If you charge too little here then you have nothing leftover to pay your caregivers, your expenses, or even yourself.

If you charge too much you'll constantly lose clients to competitors who are pulling the other levers more effectively than you.

Lever #2 - Caregiver wages

The most important thing that your pot of money pays for is what you pay your caregivers.

Unfortunately this one is not easy to manage either.

That's because caregivers have different experience, different abilities, and on top of that they all communicate regularly about what each company or facility are paying.  This makes managing wages really tough.

To make things more complicated, the hourly wage is not the full cost per hour. 

This is because to get a fully loaded cost (or what your accountant would call 'wage plus burden') you have to add about 20% extra to account for mandated employer expenses like EI, CPP, statutory holidays, vacation, and employer health tax.

This means that if you pay a caregiver $18/hour, the real cost to you is more like $21.60/hour because of the 'wage burden'. 

Lever #3 - Fixed expenses

This bucket is for everything else that you 'buy' to run your business that needs to get paid for by the proceeds from the net of Lever #1 and Lever #2.

Some examples are:

  • Rent expense
  • office staff salaries
  • phone system expenses
  • office supplies
  • janitorial for the office
  • computer system costs  

Now that we understand the three levers.  Let's look at how they fit together...

How the levers fit together

Our experience from our own business is as follows:

  • Lever #1 is really dictated by what you feel the market can bear.  You want to price yourself at the high end because you plan to setup levers #2 and #3 for a business that will deliver the best possible client service.  If you want to have money to invest in those next 2 levers you have to charge for it in lever #1.  But you have to make sure you don't price yourself out of the game.
  • Lever #2 tends to need to be about 55%-65% of lever #1.  So if you're charging $30/hour in price, you can probably afford to pay $16.50 to $19.50/hour in wages.  Looking at it the other way, if you need to pay caregivers $20/hour for something, then you need to be charging at least $32-$36/hour.
  • Lever #3 tends to be about 15%-25% of lever #1.  So if you have 1M in revenue you have room for 150K-250K of fixed expenses.  If you have 2M in revenue it jumps to 300K-500K.

Putting it altogether

Here are 2 examples of managing levers....one good and one bad....

Example #1

  • $33/hour price - lever #1
  • minus $20/hour wage - lever #2 @ 60%
  • minus $4/hour wage burden - always 20% of lever 2
  • minus $3/hour fixed costs - lever #3 @ 10%
  • LEFTOVER...6$/hour or 18% margin
  • This is A VERY HEALTHY BUSINESS

Example #2

  • $29/hour price - lever #1
  • minus $20/hour wage - lever #2 @ 69%
  • minus $4/hour wage burden - always 20% of lever 2
  • minus $6/hour fixed costs - lever #3 @ 21%
  • LEFTOVER...negative 1$/hour or negative 3% margin
  • This is A VERY UNHEALTHY BUSINESS

 Conclusion

There you go!  That's all you need to know!

Know your 3 levers, pull them together in the right way, and then never worry about it again!

Got it?  Alright, let's all get back to doing the parts we love!

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    47 comments

    Thank you for your Article. Very enlightening. Please I registered my business and would like to know where I can apply for a license?
    ———
    HomeCare101 replied:
    Hi Jemima,

    Check out bizpal.ca for business licenses in your area. There is not a specific license for operating a home care agency in Canada at this time. You just need to have a registered business.

    Cheers! Alyssa

    Jemima

    Hey Alysa, felt great to read all your articles.

    I wanna ask,
    first step of the business is to register and get the licence? is that right? and everything starts right after that?
    your articles are really helpful!
    thank you,
    Ricky
    ———
    HomeCare101 replied:
    Hi Ricky, I’m so glad the articles were helpful! Yes, you need to register your business first. You might really benefit from the Business Plan template, start up TO-DO list and Start Up Guide included in our Complete Home Care Start Up Kit <https://homecare101.ca/products/home-care-agency-complete-package>. Good luck!! Alyssa

    Ricky Choudhary

    Hi alysa!
    I filed bankrupcy and is almost done
    .
    How would it affect my financial credibility?
    ———
    HomeCare101 replied:
    Hi Menchie,

    To be honest I can’t answer that really that! It would definitely affect financing but I’m not sure beyond that. Good luck though!

    Cheers, Alyssa

    Menchie caballero

    Id love to ask you some further question on this topic.
    ———
    HomeCare101 replied:
    Hi Babette,

    You can sign up for our email list and send me an email with your questions, I try to respond to all of them!

    Cheers,
    Alyssa

    Babette

    What’s your contact number to call
    ———
    HomeCare101 replied:
    Hi Ola, I don’t actually share a contact number on the website but if you want to reach out by email I’d be happy to respond!

    Cheers, Alyssa

    Ola, T

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