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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57 comments
Hi, do you start to deduct taxes from your caregivers payroll right away, let’s say you don’t have clients yet do you have to register with CRA? If you are a small biz who makes less than 30K in 4 monthly quarters, do you still have to deduct taxes from payroll? How does that work. Does your guide cover that?
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HomeCare101 replied:
Hi Julie,
It seems like you might be mixing two kinds of taxes. If your business makes less than 30k per year (at least in Ontario) you don’t have to file HST (as of writing this). HOWEVER, you always need to deduct income taxes from employees if they request it.
This isn’t explicitly covered in the guide as this is more of a tax question than anything but the government of Canada has great guides for this kind of thing.
Make sure you check yourself! I’m not a tax expert and you need to make sure you know the rules in your area!
Cheers, Alyssa
Hi Alyssa, I am currently working as a community health nurse (RN) and is very much interested in running my home care business for seniors in Vancouver area. As mentioned earlier, I would like to partner with someone who has experience in working with a home care agency (preferrably in a supervisory position). Are you able to connect me with someone?
Hi Alyssa, I’m looking to partner with someone who has worked in home care agency before. Are you able to connect me with somebody who is willing to open their own home care business in partnership?
Thanks
Hi Angel, getting clients is definitely one of the hardest parts at the start, but as you build your business you’ll find word of mouth does your marketing work for you!
Cheers, Alyssa
Hello, I have tried several times to open homecare agency. From you post, I am able to fill so many little details the keeps me worried. The most challenging question I seek answers to is how I can get clients when I start the business.
Please can you email me to discuss futher.