How to start an assisted living facility

the need for assisted living

The demand for facilities that care for our elderly and disabled loved ones is growing. We have fewer and fewer care givers in our families and society to care for those who need assistance with the activities of daily living. Starting an assisted living business can be a very rewarding thing to do.

Many of our disabled dependents just can’t stay at home alone. At the same time there are fewer options in families to provide the care these dependents need. Active family members are busy attending to their employment or business and simply cannot neglect their work and become care givers.

And the distressing fact is that this situation is not going to get better.

With an aging population and shrinking family support possibilities, the need for senior housing options is increasing and will continue to increase into the foreseeable future. PewSocialTrends estimates the population of USA to reach 438 million by 2050. US Census estimates 20% of the population in 2050 to be aged 65 and over (up from 15+% now). These numbers do not include the increase in need for living options for the disabled.

Consider this statement from the Brookings institute.

“The latest national growth rate of 0.62 percent is noticeably below what we have experienced in decades prior. While it is still far higher than in countries like Germany, Italy, and Japan, it means that policymakers must place increased attention on caring for a larger and more dependent aging population, and dealing with the realities of a slower-growing labor force.”

There is an opportunity and a need for good quality operators to provide housing options for our increasing population who need a little assistance with daily living activities.

Is there a Place for you in the Senior Housing Business?

There are more than 28,000 assisted living residences in the U.S., housing about 1.8 million people, according to the National Center for Assisted Living (NCAL). The “typical” assisted living resident is an 83-year-old woman and the average age of all assisted living residents is 83. The average male/female ratio in assisted living residences is 74% women and 26% men. According to NCAL, the average size of an assisted living residence is 43 units and ranges from three units to 200 units.

Assisted living facilities are home to people with disabilities or those who cannot live independently, due to age and other factors. Assisted living facilities provide appropriate medical care as well as assistance with bathing, dressing, toilet and eating, among other needs. In 2018 there were approximately 1.8 Million Americans living in some type of senior living community. That number is expected to double by 2030.

Getting into the Health or personal care business is beyond the reach of most because of the cost, regulatory environment, and technical expertise needed. However, the one arena that is more accessible to the new comer is Senior Housing. Regulations are far less complex, not to mention licensing requirements, and lower cost of construction. In addition, help is available from industry experts to help you get going in the business. And we can show you exactly where to go for help in any aspect of the business.

And yes this can be a very manageable and profitable exercise. A Forbes article on the economics of these facilities estimates the profit before interest, depreciation and tax at 30% of the revenue.

Start with a Business Plan

To achieve stability and profitability, however, entrepreneurs need to create a plan with the following key points in mind. A written business plan forces entrepreneurs to explore different issues related to the business and spell out their ideas for managing each. Once written down, these ideas serve as a guide for a systematic action program to set up and manage the business.

Key issues needing exploration and solution include:

• Location- analyze demand and supply for a market of interest
  • Demographic statistics are available with formulas for how many beds of a certain type are needed per percentage of the population
  • Inventory existing providers by:
    • Type
    • Age of facility
    • Number of beds (standard of measurement)
    • Census
    • Reputation
    • Rates charged
• Select level of operation
  • Independent living
  • Assisted Living
  • Memory or specialty care
  • Continuous Care retirement Community (CCRC)
• With Market analysis and determination of approach structure the size of operation that will make the most sense.
• Estimate the costs and create a project pro-forma. Standard operating cost data is available.
• Contact the State licensing office and have a face to face on the requirements to obtain a license and learn about the regulatory environment.
• Determine staffing needs
• Develop Operating policies and procedures.
• To summarize: Compare demand for different types of beds at your target location against existing supply of each type. Look in some detail at the operating specifics of existing suppliers including the services they provide, fees they charge and their reputation. These will give you an idea of any gap in the market.

Next, explore the regulatory and licensing requirements, staffing needs and facility requirements before finalizing the specific service you will provide. Ideally, this should fill the gap identified as above.

You would now be in a position to start creating a project proposal.

In the following sections, we dig a little deeper.

More on demographics and the market

the market

Not all disabled and elderly people need assistance. However the percentage of those who do in each category is increasing yearly, and coupled with the increase in the number of elderly and the decrease in the population of the younger wage earners and caregivers, the demand for senior living options is growing exponentially.

Nursing homes in the past cared for most of the senior living needs, while most of that need has shifted to more assisted living, there is still more of a shift that needs to occur. Assisted living facilities can care for the largest segment of those needing care beyond their own home, and of course the cost is much lower and the quality of living is much higher.

Another category for Senior living which is growing in popularity, and in fact had a better year in 2018 than any of the other Senior living options is what we call Continuing Care Retirement Communities (CCRC). CCRC’s provide a continuum of senior living options so that someone can move into an independent living situation and as needs for assistance or care increase the living options are available in the same community. i.e. assisted living, memory care, skilled nursing (short or long term), etc.

Occupancy rates for all types of communities for 2018 was 89% to 90%. CCRC’s posted overall occupancy rates slightly higher than any other type of community. These rates are a little lower than prior years. This comes from the “State of Senior housing report” which is produce by a cooperative effort of several leading senior housing groups including The American Seniors Housing Association, Argentum and the National Investment Center for Seniors Housing, and others.

So even in what many consider to be a slower market the demand is still solid, and the need is accelerating.

keys to entering the assisted living business

There are several major keys that you need to know before starting assisted living facility. These keys also apply for memory Care Facilities, Independent Living, Adult Family Homes & Nursing Homes

effective marketing is important when you are starting any business

Effective marketing plays a major role when you are creating the assisted living facility business plan. For example, opening a nursing home and using the traditional marketing methods might not work for that particular location as well as using digital marketing.

Creating Awareness should be the first step when you Start

Take the time to carefully vet out a market of interest by taking the steps listed above. Then consider some of the following suggestions

Begin with networking. Meet with local residents groups, trade organizations and persons with influence among potential residents, health care organizations like hospitals, skilled nursing facilities, home health companies, etc.

You will create an awareness and gain great insight into the existing competition and also ideas for what is missing in the market, and what needs could be filled.

A quality, well thought out website and printed material are critical.
Advertising on social media by using visual and clear graphics and using google ads to spread the word are a necessity if you want your group home or assisted living startup to be successful.

the need for Quality Service

The business of providing personal care to aged and disabled persons is an increasingly competitive one. Entrepreneurs have greater chances of success if they know the market and learn the areas where needs are not met. We are not talking about just physical facilities. There is always room for an operator who wants to do the job even better than the others. Quality measures are many and include responsiveness to the concerns of the resident and families, demonstrable value, a willingness to be open and participative in care issues for family members, and the list goes on and on. Extra mile emphasis on quality does not go farther in any industry than this one, where you have day to day responsibility for the loved ones of others.

Just walk into any Senior living facility and within minutes you can get feel for the quality of the environment. And if you think about taking a loved one into a prospective living situation and consider how you would want to feel, you will see where your opportunity lies.

Consider what needs to be done to appeal to the prospective resident and the families of those individuals or couples. The formula is not difficult, but it takes attention to detail.

What Value your new Assisted Living Facility will Offer?

A clearly stated value proposition explains to prospective customers how a particular offer meets their needs and expectations, and why you can do it better than the others. In the case of senior living, consider some of the following:

• Customers are elderly and disabled persons with a variety of needs for care. And almost equal in customer status are the family members, who have their own agendas and needs relative to their dependent loved ones.
• Needs include assistance with the activities of daily living, medication assistance, healthcare, help with behavior challenges, general wellness and even happiness and comfort.
• The physical environment does not necessarily need to be fancy, but it needs to be clean and orderly, to help demonstrate that you are as concerned about their new home as the prospective resident.
• Treat every prospective resident and family member with absolute dignity and sensitivity.
• Give special time and attention to specific needs and outline ideas for how you will help meet those needs.

Dignity and independence are always important, no matter the appearances.

operating tid-bits

starting and running a residential living facility

The Start-up Process:

• Deciding on the niche.
• Talk to the State regulators on licensing and the regulatory environment.
• Analyze the market
• Developing a comprehensive business plan.
• Search for the right location
• Pencil out the start up costs
  • Building
  • Ramp up
  • Marketing
• Pro-forma the business
• Analyze the labor pool
• Policies and procedures

Providing Care:

• Know the demands of the business
  • 24 hr/7 day a week care
  • Behavioral challenges
  • Family needs and demands

Administration:

• Dietary issues
  • Menus
  • Food costs
  • Kitchen management
• Medication management
  • Pharmacies
  • Nursing support
  • Med management
• Staffing
  • Care givers
  • Nurses
  • Kitchen
  • Housekeeping
  • Management
• Financial management
  • Billing management to maximize Revenue
  • Accounting and Budget
• Activity Management and Transportation

financials considerations

how much does it cost to start an assisted living facility?

A Forbes article on assisted living facilities estimates the cost of an 80-bed facility at $11 million (or $130,000 to $145,000 per bed).

Three to six months’ operating expenses should be part of the budgeted start-up costs. The level of operating costs will depend on the type and size of the facility to be created.

Considering the typical cost structure and prevailing billing rates per resident, the Forbes article (mentioned above) suggests building a 70 to 100 bed facility to achieve the best economies of scale. However, many investors new to the business have started with a single renovated home caring for 6 residents.

There are options in a range of 1 to 20 million dollars.

Typical operating costs

Major operating expenses are

1. Labor related expenses (Salaries,Benefits,Taxes)
   1. Typically around 30% of total revenues for all areas
      1. Administrative
      2. Dietary
      3. Housekeeping
      4. Maintenance
      5. Care givers
      6. Nursing
      7. Marketing
      8. Activities
      9. Payroll taxes
      10. Benefits
2. Food4%
3. Insurance3%
   1. Property
   2. Liability
4. Taxes4%
5. Utilities3%
6. Marketing/Advertising2%
7. Maintenance2%
8. Housekeeping1%
9. Care supplies1%
10. Management fees5%
11. Other5%

Total operating expense can be around 70% of revenue.

Corporate and overhead expense categories include:

1. Debt Service/Rent/Mortgage
2. Replacement reserves

revenue streams

Revenues of Senior Housing business are generated from fees charged for each resident. Fee structures typically include:

• All Inclusive: Residents are charged a fixed amount each month, for all services provided
• Tiered Pricing: This would include:
  • Base Fee
  • Fees for additional occupants
  • Care level fees (Higher fees for higher levels of care. Some residents might require little or no extra care and will be charged at the lowest tier. On the other hand, residents with problems like Alzheimer’s who need intensive care will be charged higher fees.) Residents are assessed at the time of their admission, and at regular intervals thereafter to determine the level of care they need, and placed under the appropriate tier.
• Fees for Services: Charges for additional services.
  • Food
  • Transportation
  • Grooming
  • Physical Therapy
  • etc
• Entrance Fees: Some charge deposits or entrance fees.

A report from National Center for Assisted Living (NCAL) estimates the median cost for assisted living at $4,000 per month.

The financial options page of PayingForSeniorCare website has the following estimates:

• National average cost of assisted living is $4,000
• Add $800 to $1,200 to the above for memory care (Alzheimer’s and dementia)
• Costs vary from state to state. They range between $2,800 and $4,500 in South and Mid-West. And are in the higher range of $4,200 to $6,050 in Northeast and the West Coast.

Survey the market for local rates

conclusion

The business of starting an Assisted Living Facility is an excellent opportunity that is in line with emerging demographic realities.

An aging population means that more and more people will need assistance for coping with activities of daily living. This assistance cannot be provided by family members busy with their work routines.

The family members are also not likely to have needed expertise in handling different types of conditions, such as Alzheimer’s.

Housing options for our elderly and disabled is thus a growing need and will remain so for the foreseeable future. It is part of the fabric of our modern day culture for many reasons, good and bad.

There are opportunities for innovation and gaining a competitive advantage. Many kinds of professional care givers and many types of living models will be needed.

The standards for facilities and operators and the models continue to mature and improve, but we still need pioneers and great thinkers to help with the solutions we will need to adequately care for our aging population.

One big advantage for prospective entrepreneurs is that resources for helping them get into the business are also more developed and accessible than ever. Building models, financing, operational materials, consultants, national standards and statistics and more are all available. The time has never been easier to start an assisted living facility.

Though challenging, this is a great business which provides a needed and great service.