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Senior Care

Systems Help When Selling

By March 15, 2022No Comments

I had a call with an assisted living owner earlier this week. They are planning to sell their facility this year and wanted to talk about things they can do to be sure they’re ready.

First, I congratulated them for taking the time to look months ahead and think about what’s involved in selling. Many sellers come to the selling decision very quickly and without really considering whether they’re ready. Too many are not.

Next, we covered the process from a high level and then dove down into a few details for them to work on so that they will be ready later. And while there are many other things to consider (things I’ll work on with them in the near future, and share with you too), we discussed whether their current systems were up to the task.

The systems I asked them about were the accounting system and census system.

You may be thinking ‘what does that have to do with anything?’ And ‘is that really important?

It is. And here’s why.

Buyers don’t just buy buildings, they buy financials, too.

When it’s time to sell and you confidentially take your assisted living facility to market, you need to have rock-solid financial statements that are up to date. The financials will be the primary factor in finding the market value of your assisted living facility. And not just for you.

Buyers will look at your recent income statements (aka, your P&L) and find how much money is on the bottom line to support their financing and provide a return on their investment. Likewise, their lender and appraisers will look to those financials too.

So what happens if you don’t have an accounting system that’s up to date? What if your books include expenses that are more personal than business? What if you’re not recording revenue that matches your rent roll?

I’ll tell you what happens.

Without reliable financial statements, you will have trouble coming up with an accurate valuation and asking price. And once you have an interested buyer, you’ll have trouble convincing them that your sale price is fair. And once you strike a deal with a buyer, they’ll have trouble with financing because they can’t show their lender how the loan will be repaid from the income of the property.

I’ve seen these problems dozens of times. And they’re problems that can be avoided with a reliable, accurate, and up to date accounting system. Sellers with a good set of books breeze through the challenges that accounting-challenged sellers stumble over.

Census reports are also critical.

A clean profit & loss statement will give a buyer, their lender, and their appraiser the information they need to model their own projections, support the price they’re paying, and prove out the ability to repay a loan. But a smart buyer and their team will dig a bit further.

The resident census (or rent roll) is the list of residents in your assisted living facility at any one time, or over any particular period. A resident census should list: 1) each unit in your facility, 2) whether each unit is occupied or vacant, if occupied 3) the name of the resident, 4) the resident’s admission date, 5) the amount the resident pays each month, 6) the payor source (whether private pay or another source), and usually more.

A resident cenus is important to a buyer because it provides the detail behind your profit&loss statement and helps confirm that you haven’t “cooked the books”. It gives the buyer something they can verify as part of their due diligence to prove that the income is what you say it is. It’s an essential item in any buyer’s due diligence.

Many assisted living sellers, especially owners of smaller assisted living homes or small facilities, don’t bother creating a census report or tracking resident occupancy data. That’s a mistake. And it can be a costly mistake when an owner is selling, or sometimes even when they’re refinancing their property.

In other posts, I’ve talked about how to keep a simple resident census system. And there are many off the shelf software packages that do an excellent job. They’re worth the cost – if not today, then later when it’s time to sell.

The bottom line is you need good accounting and census systems.

If you have these systems in place, you’ll manage better today and you’ll be more likely to realize a better sale price when you’re ready to sell your assisted living facility.

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