EP 104: How to Sell a Home Care Business with Jeff Bevis

Ed Mysogland  0:19  
Welcome to another episode of the defenders of business value podcast. I'm your host, Ed Mysogland. And today, I got a great episode, Jeff Beavis. Jeff is the Chief Operating Officer at caring senior service franchise, and this is a homecare franchise, you know, so when, like, in my case, you know, we have, you know, my mother in law's is getting up in age, and she's probably going to require a, you know, some additional services that, that from from where I'm at three and a half, three hours away, it's just hard to do. And so, so these, the, this franchise comes along, and they Augment, you know, homecare services that family members would typically provide. And so one of the things that, you know, one of the things that I'm really excited about, and is is Jeff as a person, because Jeff is probably one of the most transparent and, and information sharing people that that I've had on the podcast, he talks about market multiples, like it's no big deal, he talks about, you know, where, where this industry is going, like, it's no big deal. And, and at the end of the day, you know, he is looking at how to further serve the people that have entrusted him. And so I'm certain if you've ever considered the homecare world, this episodes for you because it is absolutely dynamite. So like I said, I'm certain you'll enjoy my conversation. Jeff Beavis from caring senior service. Well, welcome to the show. Jeff.

Jeff Bevis  2:01  
Thanks for being here. Well, it's great

Ed Mysogland  2:03  
to have you I've been looking forward to this for a while, you know, 38 years in the franchise world, you don't get you don't get this kind of horsepower on a podcast like this very often. So I'm glad you're on and, and I, the worst part about about my podcast is the is the introduction. I, I before, before you come on, I do my introduction. And but I just don't think it ever does the guest any good. So I hate hate to ask you, but can you talk a little bit about you know, just kind of your, your, your journey into into this space? And and then, you know, caring senior service? Sure,

Jeff Bevis  2:50  
absolutely. I've been in the homecare franchise space for the last 21 years. 38 years total, one franchising seven brands across five industries, but homecare, to me Ed was like the best of both worlds to marry the franchise entrepreneurial aspect to it, and really help aspiring entrepreneurs, but then to be able to serve seniors and the disabled and very vulnerable population. And having those two combined now has just been in the best possible scenario. From my standpoint.

Ed Mysogland  3:28  
The funny thing is, when you do when you do research for a podcast, you know, the funny thing is, you never know what you're going to hear about people. And the funny thing about you is no one can say anything bad about you, I went high and low, and your salt of the earth salt of the earth guy. So I'm glad, I'm glad you're on and I'm glad you're my guest. And, and the the first question I had for you, is kind of the state of the industry because, you know, COVID COVID was kind of crazy in in, in your world. You know, so So I guess, you know, where did you come from? And where are we now? And where are we going?

Jeff Bevis  4:08  
Absolutely So and COVID No disrespect intended, of course, I actually put a spotlight on the home care industry in a very positive way. So we've seen tremendous lift as an industry coming out of COVID. Because of that the industry was growing. The last 20 years, it's grown dramatically, the demographic said and multiple forces are all showing actually almost a doubling of the industry in the next 20 years. Which is hard to imagine having seen it literally in this this past 20 years but with a spotlight on home care now is really the place that people want to stay, as well as healthcare professionals seeing this is the low cost. Really focus area for Patients clients, non medical and medical, it's a great industry, a lot of moving parts. It's not without its challenges, but a lot of opportunity.

Ed Mysogland  5:09  
Well, the biggest complaint that that I have heard, has to do with the barriers to entry that you know, what you, you can just set up shop and you're in business and, and like my industry, the best thing that could happen is, is some regulatory body overseeing this, and keeping the riffraff off to the side. And so, and that's, that's kind of where my question is, is the differentiation? How does someone know to what's, what's the, what's a rep, you know, you can go to better Better Business Bureau and things like that. I recognize that. My question it has to do with, you know, can i Where's the signal from the noise? You don't? I

Jeff Bevis  5:57  
mean, yes. So there's, there is low licensure. But there is state licensure in 34 of the 50 states. Okay. And that is a positive. So to your point to your question, I think increasing licensure. And in 2003, when I came to this industry, and there were six dates, I had lice, so it's gone from six to 34 and 20 years, it will eventually be at 50. So the licensure is one positive force to leash kind of barrier of entry, at least, at least established kind of a service level, and to try to drop that riffraff under the table, you know, out of the market. The reality is, because of the demographics and the overall demand, I think even with licensure in 50, states, we're still going to always have the private individual caregiver out there that doesn't have to be licensed. So

Ed Mysogland  6:47  
with the franchise, is the license with the franchise? Or is the license with the franchise II or both? Yeah,

Jeff Bevis  6:55  
it's actually both. So the license is a state license granted to the franchisee, and they have to provide their franchise agreement as a backup with their application.

Ed Mysogland  7:04  
I got it. So like, when you're valuing when you and I'm going to jump around here, but when, like, when you when you see see a franchise, and it can be, you know, franchises in general, but but from from the homecare space, you know, where, where are the value drivers? What what creates value in this business? Because it just seems, you know, you have we're going to talk about recurring revenue coming up, but but there has to be more to it than just having the contract for the client, right?

Jeff Bevis  7:40  
Yes, yes, yes, there's definitely infrastructure there, your multiples are running three and a half to four times earnings as an industry average, clean financials, solid three, five years plus operating history can get you in 789 times earnings range. So the multiples are definitely solid. The infrastructure pieces, really, like any other franchise business said are the main drivers. So you know, are their systems processes the team, not the owners, per se, obviously, because you don't ever want to buy a business and then the owner walks away and the businesses is zero, right. But it's the team. It's the people and in our business, as you know, well, that labor challenge with the caregiver in the staff is the biggest, biggest driver right now.

Ed Mysogland  8:30  
Yeah, so how do you retain it retain, retain those types of people? Because, again, we you know, I've talked to so many homecare businesses where, you know, the biggest complaint is someone will jump ship for a quarter an hour. And, and that's hard. And so, so how do you how do you make those those clients or those types those employees? Sticky?

Jeff Bevis  8:57  
Yeah, there's, that is that is the absolute challenge to us. I will make a point, though, that we have a retention issue in this industry. We don't have a turnover issue. In other words, we're having a recruiting issue, we have a retention issue, or caregiver turnover rate per the industry. There's what's called the homecare pulse benchmarking report comes out every year. Last year was 77.1%. Was the caregiver turnover number. That's that's fast food like Yeah. But it's really good question of to your to your point about someone jumping for a quarter more per hour, it's really not pay when we survey caregivers as an industry or as a brand here carrying pay is fourth or fifth down the list really wants to look 123 Number one is they want flexibility of schedule. Number two, they want appreciation loyalty and to be valued. Number three is they want training and professional development. And number four is pay. Wow.

Ed Mysogland  9:57  
I've not million years what I've thought it. Yeah, so, okay. But it makes sense. So

Jeff Bevis  10:04  
then what what that leads to is the brands that do a good job of basically investing in their people developing their people showing a career path, showing that, that training and professional development, that they're the ones that have that stickiness, and they keep the caregivers, so they have a higher retention rate a lower turnover rate. Wow.

Ed Mysogland  10:24  
I wouldn't have, I wouldn't have thought I wouldn't have thought that was one of the other the other reasons that that I have heard had more to do with the client interaction that some of these people are just brutal to work with. And it's like, you know, what, what? Out? Sorry for your situation, but why are you taking it out on me kind of thing at but, but the business owner is locked in, because, you know, that's revenue, you know, we got to kind of figure out how, how we're going to make this work. So

Jeff Bevis  11:03  
good. Yes, very true, although, I will, and again, no disrespect intended to our clients, because we're here to serve. But it's okay to fire a client. Yeah. Because our number one asset add is the caregiver, or those actual people. And if I've got a client that is the rating or mistreating caregiver, then I need to make a decision because otherwise I'm going to lose that caregiver who could be somebody that serves multiple clients. Yeah, I get it.

Ed Mysogland  11:39  
You earlier, you had mentioned earnings, you had three, you had three or four times earnings and can get as high as seven to nine under special, like real special circumstances when you when you say earnings define that for me. That's basically EBIT da. Okay. But not officers compensation, or is it? No. So true EBIT up? I got,

Jeff Bevis  12:00  
yes. That would be in addition, obviously.

Ed Mysogland  12:06  
So is, is that up? Or even like, you know, I've been following, I've been following multiples at, you know, the, the sub $10 million revenue space for a long time. And it just doesn't seem like there's that much volatility. Is it true or false? In in your, in your business? That it stays fairly consistent?

Jeff Bevis  12:32  
I would say true. It's been in that. Call it two and a half to four range, gosh, last eight or 10 years.

Ed Mysogland  12:41  
I get it. And and are you seeing? You know, this is franchise specific? Are you seeing a lot of interest in people coming? You know, investigating this type of franchise? I know the answer is yes. But my. But Mike, my question is, who are the who are the people that are coming and looking? Because it seems that it's different? Like, you know, you've been in 38 years. I'm 31. And I'm sitting here going, Wow, the, the avatars in the landscape of the business buyers are nowhere what they used to be. So I would agree.

Jeff Bevis  13:20  
Yeah, yeah. It's it's really changed a lot. And it seems like a lot of that change has occurred. Post pandemic. Yeah, the COVID has caused some of that. But, yeah, so we're seeing still some of that second career early retiree, especially now with the economy being a little bit more shaky. You know, folks coming out getting a package downsizing, some of that, but I would say the majority are in two new different camps. One is the much younger entrepreneur, a 20, something 30 Something who maybe has had some quick success in the first six 810 years of their career, and really wants almost like a work life balance shift to being their own boss, you know, controlling their own destiny, but really doing something that has a purpose. So that's one group that I we see really on the rise of the group is quite honestly private equity, randomly, pure financial buyers and this poses for both franchisors and franchisees, but the last two, three years, we've had a continual stream of private equity buyers small to midsize that are looking to most like roll up multiple franchises in a given brand now, some of them have not understood the fact that you know, I can't buy a caring senior service in a home instead and right at home because I have that nine feet limitation, but that that's what they think they want to do. So they end up going into An individual brand and trying to buy multiple startup territories as well as existing. And so they don't,

Ed Mysogland  15:08  
it surprised me with private equity, because I would assume that the cost associated with the ongoing fees of a franchise would would create, you know, some friction, especially with their management fees, and all the other things that they bake into, you know, the the acquisition. So that's interesting, but I can totally see from my experience with private equity and their use of system systematizing so many things and just, you know, coming up with ways to add, you know, add gas to a great operating system, it seems it seems counterintuitive, but but you're the one saying,

Jeff Bevis  15:52  
well, it's it has been a little surprising to I think the appetite, there is still more in, in kind of the higher end larger end of this, of our home care industry. Meaning, you know, I was talking to a gentleman last week, who said, I really want somebody in the one and a half million to 5 million EBIT da range. But there aren't a lot of franchises, at least the first couple of years that are in that range. Now, there are folks out there, because this industry is had such a high growth industry, but so they're taking kind of a needle in the haystack, very, very highly targeted approach to try to find those high EBIT, da opportunities.

Ed Mysogland  16:30  
So does the franchise. You know, I know most of them bacon, you know, the first right of refusal? And I mean, do you guys with what you are seeing on on the horizon, especially, you know, industry consolidation and things like that? I mean, are you in your space? Or are you exercising often or in turning them into corporate corporate operations?

Jeff Bevis  16:55  
And we've we've done a little, little bit of it here at caring Ed, historically, because we have five corporate operations now. So we have that infrastructure base. As a rule, I would say we we, most of the time have not exercised it. It's really been more if there have been extreme circumstances of bone or health death.

Ed Mysogland  17:15  
No, yeah. Yeah, those types of things. So when, when you like for the younger ones, the younger buyer pool that that you mentioned, you know, I do some teaching over at Butler University, and, and, you know, the entrepreneurship through acquisition. I mean, that's a that's a thriving area. And, and I'm sitting here, you know, and, yeah, I've got kids that are getting to be close to this age, and, and I see him as kids, and I'm like, How in the world are you going to come in, and coach and lead and so on, so forth, but I could totally see why a franchise might make the most sense, because you, you know, you are able, you have that backstop of the process more so than the personality of the owner? You know, exactly. Or the the, you know, the the competency of the owner, and the two of you can learn together. I mean, is that is that what you see do?

Jeff Bevis  18:12  
We do? We do, and it's a little bit of a little bit of, maybe kind of stemming their enthusiasm. And you may have seen other classes where it's almost like they come in, and they think they have all the answers. And, and they're a little bit, there's a learning curve for them to understand, okay, I don't have all the answers, that my original concepts are a little bit too idealistic. The real world is really more like over here. And that's where the franchisor is gonna really help me. So I think as long as we kind of reached that point in the middle, then it works well. Well, from from a financing

Ed Mysogland  18:47  
standpoint, does the SBA Yeah. Do you have any preferred folks that you work with as far as that get money? Get you guys finance?

Jeff Bevis  18:56  
We work quite a bit with guidance. Okay, so,

Ed Mysogland  19:01  
so the 401 K, you're using the 401k money? Yeah. So and the reason I bring I bring that up is, you know, any more the acquisition, you're only required to put 10% money or 10% of your own equity in to buy you know, to acquire a business and as a taxpayer makes me kind of cringe it's a deal guy. Thumbs up, man. Just keep rocking. But the the thing and I only bring that up for two reasons, one, that that the barrier, the financial barrier to entry into a business is is lower and having the backstop of a the seller and be the franchise seems to make oh my gosh, it makes so much sense for someone to to buy in. But the other side and I don't know if you saw this, you know, the SBA has two you know, two programs is out now, where it has, you know, if you're buying, like, once a one franchise wants to buy another franchise, there's no money from the buyer from the buyer that's required, and they can buy an existing franchise, as long as you're in the same NAICS code for for no no money, it's assuming you have a decent balance sheet. So that's a, that's a big thing, as far as from my standpoint to share with you is that your franchisees could be growing through acquisition barely, I want to say easily, but, you know, they're already in the system. So something to consider. And then the second thing that they just came out last Wednesday, it's effective November 15, is partial ownership buys. So, you know, before they were requiring almost like an ESOP, where the the business owner is required to personally guarantee the debt of the buyer. So they default they have, there's recourse to the to the selling partner, and but now it's, now they can stay with the business, they can take the chips off the table. So, you know, for those, those franchisees that are, you know, considering considering selling, or, you know, they're at that age, or they have a partner, or they're looking at retention, or they're looking at all kinds of reasons why you would want to sell a fractional interest in your business. This is a, it's a good time to be doing that, too. So it definitely

Jeff Bevis  21:37  
definitely creates warmer interim steps. One doesn't want to exit completely. That's kind of a first step, the take out of the business, but still still kind of stay involved. Right.

Ed Mysogland  21:47  
So how does the the key employees? I mean, what's the trajectory of a staff person? You know, that it? You know, because I get a lot of questions about how do I take my key employee, make them even? Not only sticky, but also perhaps my succession plan? So are you seeing any? You know, here's how you identify this person? Yes,

Jeff Bevis  22:15  
we actually have a program here that we have introduced in the last year called managed to own nice, you know, we've seen that in past franchise industries before that, it really attacks exactly what you're talking about. So it takes your way in our world and agency director, kind of general manager that runs each of these businesses on a day to day basis, he or she the normal, normal progression for them is to earn equity or to obtain equity and become at least a partial minority owner, like you said, could even be an exit strategy to the current owner and handled that current owner exit completely. Three, five years down the road. Wow,

Ed Mysogland  22:57  
do many franchises have that? I don't think they do. Um,

Jeff Bevis  23:01  
you know, I mean, I've been doing it in all five industries that I have, that have been over the years I first started, you know, in in truck rental and car rental with thrifty with a budget, truck rental on thrifty car rental. And we had back then Ed so that I've always seen that as being a real appeal, you know, it's not not going to be a massive feeder to your pressure. But if you have a really good solid managed own program, you should be able to do six 810 awards a year. Yeah, well, that's what I'm

Ed Mysogland  23:32  
the reason I share that, or asset has more to do with Normally when people show up at my doorstep saying they want to sell, you know, they haven't turned around and looked at who might be their candidate within their four walls. Yeah, and it just surprises me that if you if your franchise is worth its salt, that you would be you would have no, but you would know about this program to, you know, to signal that this is this may be a candidate. So, that's really interesting. That's kind

Jeff Bevis  24:08  
of back to what I was mentioned before, to, even on the caregiver side applies to staff. So, you know, agency directors, care managers, marketers, the other kind of management side of each of the homecare businesses, they want that same thing, they want professional development, they want training, they want career progression, so we're using managed to own on the front end recruiting those staff management position, so they know Hey, in 235 years, that's what I want to be to be a part of,

Ed Mysogland  24:38  
you know, it's it And granted, I'm I'm this is gonna sound weird, but I don't I don't mean it to. So, so a lot of franchises that the customer tends to end up being the franchisee is that they they tend to be the buyer. Now great And I'm not, you know, the person you're serving. I'm not referring to them, but I will say probably a family member or somebody. You know, do you see that? I mean,

Jeff Bevis  25:13  
interest? Yes. Yes. In fact, that's, it's a great, great point. So about 1012 years ago, this industry shifted to where the senior the end client, who was the decision maker, we saw a major shift to the adult child. So it's the son the daughter, yeah, who really is the true decision maker now, and has been for the last eight or 10 years. Well, to your point, more and more now. It's like the adult child found found caring senior service to care for their mother or father. And then in doing so they realized, oh, my gosh, this isn't whole industry. There's a whole business here. And then it does pick up the appeal. I think I looked a couple of weeks ago, 98% of our current owners, were initially a client. Wow. Yeah. So it's a it's a big, big draw. Well,

Ed Mysogland  26:06  
but do the do the franchisees know that? I mean, that, that you know, what you may, you may want to do a great job, because that person may be your exit out of the business down the road? Yeah, definitely. Yeah, I

Jeff Bevis  26:20  
would say it's, it's kind of a mix. Okay. Part of our introducing this program last year, was really helping educate that exact point that, look, you know, if you're thinking of your exit, the first two questions I asked them are, what is your buyer look like? So let's at least understand what that profile looks like, of who they're looking for. And then the second question is, have you talked to your existing staff? Is it the existing staff may either know someone like that, or they make? raise their hand? Yeah. Interesting.

Ed Mysogland  26:53  
So So you got your staff, you've got the the clientele you're serving as potential buyer pool, and then then you then you broaden to the planet? Interesting. So recurring revenue. This is I mean, that's why everybody wants your business. That is that it's, it's driven by recurring revenue. Is that true or not? I mean, I know, partially it is that, you know, because you have an engagement and you're serving on a regular basis. But is that really what drives the value?

Jeff Bevis  27:30  
I would say it's one of one of the key factors. And the short answer is yes, but so, you know, we serve clients on an hourly basis, typically a 246 hour minimum, all the way up to an including 24/7 care, providing care around the clock. And everything in between the average client takes 24 hours of care per, per week. And we'll have clients ed for, you know, one or two weeks, and sometimes one or two days, if they're in bad, bad shape. But the average client right now is sitting at nine and a half months, is how long we take care of them. And a lot of people start at six 810 20 hours a week, and then become the, as their conditions worsen 6080 90 100 hour per week clients, so it is recurring revenue. I do have those quick in and out clients. But that's, that's just part of part of the fun part of the challenge. And a lot of those quick in and out clients come back and become a more permanent or longer, longer term client too.

Ed Mysogland  28:38  
So it's funny, because I shouldn't say it's funny, but, you know, when when I, you know, and this is years ago, when my when my mother was was deteriorating, I, I, I reverse mortgaged her house, and I'm telling you, I, you know, whatever I needed to do to keep her in that house was what was going to happen. And, and I was going to, you know, and my sister and I were a little bit sideways, because she's like, well, she can get better care. She can get better care, you know, with a, in a facility. I'm like, you know, I will burn through every nickel to make sure she's here. And yeah, and, and granted, I and I did a pretty good job of it. But at the same time, you know, that's everybody wants to no one wants, who wants to go to a facility if you don't have to go? Yes. So and I and as you as we see the baby boomers continue, I would imagine that it's going to to only amplify that this industry. So so how do you grow? I mean, I know you got I mean, I've known you for a long time and good operation. Anything that you're associated with is a good, good place to hang out. So so how are you growing and where we're

Jeff Bevis  29:59  
Growing really in a number of different markets a number of different ways. So our internal growth through existing franchise owners or who are buying or or securing a second, third, fourth territory, we're definitely growing through outside or organic sources. we're big believers and support the veteran community. So we do market heavily to veterans and their spouses. We also market heavily to the industry, as in the home care industry, and based on managers, because there are a lot of managers in operating businesses right now that have the aspiration to own their own, as well. So it's kind of that manage to own that we have internally but also manage owned X externally, too. And then lastly, we're targeting specific occupations, like physical therapists, occupational therapists, because we already have several of those that are existing very successful franchisees. And

Ed Mysogland  31:09  
so when, when someone looks to buy something like this, what I mean, two things on on the left side of the t shirt, you know, what are what are the what are the drives that we talked about recurring revenue, but what makes what makes the business a good target? You know, and, and earnings are the obvious one. And then on the other side, is, what are the red flags that that a normal due diligence doesn't shake out?

Jeff Bevis  31:43  
Sure. So I think on the on the left side, you have as diverse of a referral source base as possible. Okay. So meaning, if everybody, or they have a lot of their business, and is Medicaid state waiver, or one or two key referral source buckets, that's a limitation. You really want a very diverse referral source base. So you're getting clients for a lot of different original original sources, the team, the longevity, the team, the aspirations of the team, kind of the current state of the management team, I think is a big is a big plus. Also measuring that caregiver retention number is a key. So you've got some operational pieces, operational or people pieces, I think, that are big factors, in addition to the earnings on the red flag side, it's almost the opposite of the opposite of what the points I just said to vom lab, a few referral source buckets, if your caregiver retention number is is very low in the tournament numbers high. If you haven't seen aggressive marketing, and of course, the metrics need to be in place to back up, everything of the seller is actually telling you.

Ed Mysogland  33:02  
So when you I where I was going with this, I wanted to know from a working capital standpoint, I mean, is this is this a difficult business to fund? I mean, you know, is the time you you have a client, you perform the service. There's a there's there's billing, it's done on a weekly basis or monthly basis. So weekly, so you don't have the cash flow challenges.

Jeff Bevis  33:32  
Right. So yeah, so I think the short answer is it's not a difficult business to really fund it are new franchises. 116 276,000 is the working capital range item seven, the existing business are as a model at carrying we build every two weeks. Okay. And we are predominately private pay about 72% private pay the other 28% comes from third party payers like long term care insurance, or one of the different VA programs primarily. So the key there too, is from an AR standpoint, you really don't have especially if you have heavy private pay, the AR is almost zero. Okay.

Ed Mysogland  34:14  
So, since I'm coming to the end of all of my questions, I one of the things that I I've asked so you're I think episode 105106 And I've asked us since the beginning is if you had one piece of advice that you would give business owners that would have the most immediate impact on their on their business value and saleability. What would it be? Because you've seen you've seen a lot of them. Yeah,

Jeff Bevis  34:42  
I would say Far and Away Edie. Make a stronger, hire deeper reinvestment in your people. I see a lot of owners that almost try to systematize things and don't really maintain a high human aspect. And you know if that the team is not there, and then when the owner exits, that buyer has very little really to back everything up.

Ed Mysogland  35:11  
Nice. That's good. So what's the best way we can connect with you? Well, my

Jeff Bevis  35:16  
email is JB versus be VIPs at caring inc.com That's caring I NC certainly welcome folks to go to our website anytime. And always enjoy speaking with potential buyers or folks that are even contemplating the industry just to try to help them better understand how it works. You know,

Ed Mysogland  35:42  
and I'm glad you said that, because what the listeners don't know is just how generous you are with with information and with no strings attached. And that that to me is you know that that's why you got to 38 career in the franchise world, my man, but we'll, we'll have, we'll have links to you and, and where to find you and all that good stuff. Is there a hot market that you're looking for? Before we go? Is there? Is there a place that you know, here's the we got listeners across the country? So is there is there a spot that you're looking for

Jeff Bevis  36:18  
cash? Not really we have over 500 territories available in the US today, we're in 57 markets in 17 states, there is no state or even city even close to saturated. So with a growing senior population, we've got decades of growth, so we would welcome interest anywhere. Right? Well,

Ed Mysogland  36:40  
hopefully, hopefully, we'll we'll find you one or 10 from Thanks, man. Appreciate the

Jeff Bevis  36:48  
thanks for having me yet.

Brett Caines  36:51  
This was another episode of the defenders of business value podcasts are more episodes packed with strategies to increase the value of your business visit defenders at business value.com For shownotes transcripts and free tools to start you on your journey. Subscribe now so you don't miss any future episodes.

Transcribed by https://otter.ai