The older population in our community is in constant need of special care and support. Homecare is an essential business that elderly people and people with disabilities depend on for their day to day activities. Stoneridge Partners observes that when it comes to selling a home care practice, people can be confused about how to figure out an accurate value. There are actually a few good methods and factors to determine how a homecare practice should be valued so let’s discuss them here.
Valuing a Homecare Practice
Rule of Thumb Method
The rule of thumb method for marketing and investments suggests that companies should spend at least somewhere around 5% of their total revenue, but it is also based upon the expected generated income of the business they are buying. The percentage can also vary from company, industry, and the competition between companies.
It is one of the more general methods of determining the value of any business, but you can only really use this method as a starting point. It is advised to use this method along with another solid method in order to get the best results.
The market comparison method is a good way of determining the true and absolute value of a business. This method involves comparing two businesses within the same industry to see how each of their sales are generating value.
If your business is generating a higher sale than the other, investors will more likely be interested in buying your business. This method is used by individual business owners and experts to more accurately determine the value of businesses. It is also a good way of knowing how well your sales are doing in comparison to other businesses you are competing with.
Amount of Demand
The amount of demand that any certain business has will factor into the overall value of the company and the sales they generate. Homecare practices are in high demand amongst the elderly and disabled population. Over the course of a few years, you will be able to see the generated sales that your business has accomplished.
During that certain amount of time, you can be ensured that you have done everything you can to make your business successful by the time you are ready to sell and retire. With homecare being one of the most in-demand services, the amount of success your business generates can make or break how appealing it is to investors.
Meeting the demands and reaching high goals can prove to be difficult, but the end result will be worth it when you want investors to pay attention to your selling offer.
Income capitalization is another method you can use to determine the value of your business if you own a larger business. Income capitalization is most commonly used to evaluate commercial investment properties, but it can also apply to your homecare business depending upon how big of a scale it is.
With this method, real estate investors will try to accurately determine the fair market value of your business based upon how much revenue your business brings in. The capitalization rate ties the earnings and the value of your business together and helps determine future earnings.
Discounted Cash Flow
The discounted cash flow method is arguably one of the easiest methods you can use to determine the value of your homecare practice. This method involves calculating risk and business earning power, as well as the estimated growth and earnings of the business.
With these determining factors, you will be able to see just how much your business has grown since you first started it. You can definitely use this method if your business has a high growth rate, especially in comparison to other businesses in the same industry.
Setting a Baseline Business Valuation
Once you are prepared to sell your business, you will start a baseline business valuation. This will help you determine the current value of your company and what the value is estimated to be in the future.
If the value is currently not as high as you would like it to be, you will have plenty of time to make the necessary changes and improvements to get to where you’d like to be. This will help increase the business’s current value and help it get to the value you have projected for the future.
During this time, you can also evaluate the overall finances of your business. The financial record will also factor into the overall value of the business. If you discover that there are some financial issues that you need to address, you should start solving them as quickly as possible.
Determining the overall value of your business is absolutely imperative when it is time for you to retire and sell. These methods and factors s
hould be able to help you prepare and determine how to make your sale when you are ready. The method that you end up choosing may depend on the value of your business or your goals for the future, amongst other things. Depending on the size of your business as well, some methods may work better over others. As long as your business has a high growth rate and a good value upon retirement, investors should be interested in what you have to offer.