Caring COO was featured as a guest on the podcast Defenders of Business Value with Ed Mysogland. They discuss what it takes to run a successful home care business and how business owners can build value in their company. Listen to the podcast or read the full transcript below.
Full Podcast Transcript
00:20 – Ed
Welcome to another episode of the Defenders of Business value podcast. I’m your host, Ed Mysogland. Today I’ve got a great episode, Jeff Bevis. Jeff is the Chief Operating Officer at Caring Senior Service franchise. And this is a home care franchise. So when like, in my case, my mother-in-law is getting up in age, and she is probably going to require some additional services that from where I’m at 3 hours away. It’s just hard to do. So this franchise comes along and they augment home care services that family members would typically provide. And so, one of the things that I am really excited about and is Jeff as a person. Jeff is probably one of the most transparent and information-sharing people that I have had on the podcast. He talks about market multiples like it’s no big deal. He talks about where this industry is going like it’s no big deal, and at the end of the day he is looking at how to further serve the people that have entrusted him. And so I am certain if you’ve ever considered the home care world, this episode is for you because it is absolutely dynamite. So I am certain you will enjoy my conversation with Jeff Bevis from Caring Senior Service.
Welcome to the show Jeff.
02:01 – Jeff
Thanks Ed. I appreciate being here.
02:02 - Ed
Well it’s great to have you. I’ve been looking forward to this for a while. You know, um 38 years in the franchise world, you don’t get this kind of horsepower on a podcast like this very often. So I’m glad you’re on and the worst part about my podcast is the introductions. Before you come on, I do my introduction but I just don’t think it ever does the guest any good, so I hate to ask you, but can you talk a little bit about your journey into this space and then Caring Senior Service?
02:49 – Jeff
Sure absolutely. I’ve been in the home care franchise space for the last 21 years, 38 years total in franchising, 7 brands across 5 industries. But home care 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 are a very vulnerable population, and having those 2 combined now it’s just been the best possible scenario from my standpoint.
03:25 – Ed
Well, the funny thing, when you do research for a podcast you know the funny thing is that you never know what you’re going to hear about people and the funny thing about you is that no one can say anything bad about you. I went high and low, and you’re a salt of the earth guy.
03:45 – Jeff
Well thank you.
03:46 – Ed
I’m glad you’re on and I’m glad you’re my guest, and the first question I have for you is kind of the state of the industry because, you know, COVID was kind of crazy in your world. So I guess where did you come from? And where are we now? And where are we going?
04:08 – Jeff
Absolutely. So COVID, no disrespect intended of course, actually put a spotlight on the home care industry in a very positive way. So we’ve seen a tremendous lift as an industry coming out of COVID because of that. The industry was growing. In the last 20 years, it’s grown dramatically. The demographics, Ed, and multiple forces are all showing actually almost a doubling of the industry in the next 20 years, which is hard to imagine seen it literally in this past 20 years. But, with the spotlight on home care now, it’s really the place that people want to stay as well as health care professional seeing this is a low-cost, really focused 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.
05:09 – Ed
Well the biggest complaint that I have heard has to do with the barriers to entry. You can just set up shop and you’re in business. And like my industry, the best thing that can happen is some regulatory body overseeing this and keeping the riff-raff off to the side. So, that’s kind of where my question is. Is the differentiation, how does someone know to, you know... You can go to the Better Business Bureau and things like that, I recognize that. My question has to do with where is the signal from the noise. You know what I mean?
05:58 – Jeff
Yes. So there is low licensure, but there is state licensure in 34 of the 50 states. And that is a positive. So to the point to your question, I think increasing licensure. In 2003 when I came into the industry, there were 6 states that had licensure. So it’s grown from 6 to 34 in 20 years. It will eventually be at 50. So licensure is one positive force to at least establish kind of a service level and to try to drop that riff-raff under the table, 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.
06:48 – Ed
So with the franchise is the license with the franchise or is the license with the franchisee or both?
06:54 – Jeff
Yeah, 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.
07:04 – Ed
I got it. So, when you’re value, and I’m going to jump around here. But like, when you see a franchise — and it can be franchises in general — but from the home care space, where are the value drives? What creates value in this business? We’re going to talk about recurring revenue coming up, but there has to be more to it than just having the contract for the client, right?
07:40 – Jeff
Yes, yes. There is definitely infrastructure there. Our multiples are running 3 and a half to 4 times earnings as an industry average. Clean financials, solid 3 to 5 years plus operating history can get you in the 7, 8 to 9 times earnings range, um, so the multiples are definitely solid. The infrastructure piece is really like any other franchise business, Ed, is the main driver. So, are their systems processes the team, not the owners per se, because you don’t ever want to buy a business and then the owner walks away and the business is zero, right. But it’s the team. It’s the people. In our business, as you know well, that labor challenge with the caregiver and the staff is the biggest driver right now.
08:31 – Ed
Yeah, so how do you retain those types of people? Because, again I have talked to so many home care businesses where the biggest complaint is someone will jump ship for a quarter an hour, and that’s hard. So, how do you make those employees sticky?
08:59 – Jeff
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 don’t have a recruiting issue, we have a retention issue. Our caregiver turnover rate per the industry, there’s what’s called a Home Care Pulse Benchmarking report that comes out every year. Last year, 77.1% was the caregiver turnover number. That is fast-food-like. But it’s really a question 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 you’re carrying, pay is 4th or 5th down the list.
09:41 – Ed
Really? What’s the 1, 2, 3?
09:46 – Jeff
Number 1 is they want flexibility of schedule. Number 2 they want appreciation, loyalty and to be valued. Number 3 is they want training and professional development, and number 4 is pay.
09:56 – Ed
Wow. Not in a million years would I have thought that. So, okay but it makes sense.
10:05 – Jeff
And 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 the training and professional development, they’re the ones that have that stickiness and they keep the caregivers. So they have a higher retention rate and a lower turnover rate.
10:23 – Ed
Wow. I would not have thought that. One of the other reasons that I have heard had to do more with the client interaction, that some of these people are just brutal to work with, and it’s like, "you know what, sorry for your situation but why are you taking it out on me?" kind of thing. But the business owner is locked in because that’s revenue, you know, and we’ve got to figure out how we’re going to make this work.
11:04 – Jeff
Yes, that’s very, very true although, and again no disrespect intended to our clients because we’re here to serve, but it’s okay to fire a client. Because our number one asset, Ed, is the caregiver or those actual people. If I’ve got a client that is berating or mistreating a caregiver, then I need to make a decision because otherwise I’m going to lose that caregiver who could be someone that serves multiple clients.
11:36 – Ed
Yeah, I get it. Earlier you had mentioned earnings. You had 3 to 4 times earnings and can get as high as 7 to 9 under real special circumstances. When you say earnings, define that for me.
11:52 – Jeff
It’s basically EBITDA.
11:54 – Ed
Okay, but not officer’s compensation or is it...?
11:58 – Jeff
No.
11:59 – Ed
So true EBITDA? I get it.
11:59 – Jeff
Yes. That would be in addition, obviously.
12:03 – Ed
Um, so is that up or even? Like I’ve been following multiples at the sub $10 million revenue space for a long time, and it just doesn’t seem like there’s that much volatility. True or false — in your business, it stays fairly consistent?
12:32 – Jeff
I would say true. It’s been in the 2.5 to 4 range for the last 8 or 10 years.
12:42 – Ed
I get it. And, are you seeing, you know this is franchise specific, are you seeing a lot of interest in people coming, investigating this type of franchise? I know the answer is yes, but my question is who are the people that are coming and looking? Because it seems that it’s different. You know, you’ve been in it 38 years. I’m 31 and I’m sitting her going, "wow, the avatars and the landscape of the business buyers are no where where they used to be."
13:20 – Jeff
I would agree, yeah. It’s really changed a lot, and it seems like a lot of that change occurred post-pandemic. I think COVID has caused some of that. But yeah, we’re seeing still some of that second career, early retiree especially now with the economy being a little bit more shaky, folks coming out getting a package, downsizing, some of that. But I would say the majority are in 2 new different camps.
One is the much younger entrepreneur, a 20-something, 30-something, who maybe has had some quick success in the first 6, 8, 10 years of their career and really wants almost like a work/life balance shift to being their own boss, control their own destiny. But really doing something that has a purpose. So that is one group that we see really on the rise.
The other group is quite honestly private equity. Pure financial buyers and this poses for both franchisors and franchisees but over the last 2 to 3 years, we’ve had a continual stream of private equity buyers, small to midsize, that are looking to roll up multiple franchises in a given brand. Now some of them have not understood the fact that I can’t buy a Caring Senior Service and Home Instead and ride it home because I have that non-compete limitation. But that is what they think they want to do. So they end up going into an individual brand and trying to buy multiple start-up territories as well as existing.
15:05 – Ed
And it surprises me with private equity because I would assume that the cost associated with the ongoing fees of a franchise would create some friction especially with their management fees and all the other things that they bake into, you know, the acquisition. So that’s interesting. But I can totally see from my experience with private equity and their use of systematizing so many things and just coming up with ways to add gas to a great operating system. It seems counter-intuitive, but you’re the one seeing this.
15:52 – Jeff
Well, it has been a little surprising, too. I think the appetite there is still more and the larger end of our home care industry. Meaning like I was talking to a gentleman last week who said. "I really want somebody in the $1.5 million to $5 million EBITDA range." Well there aren’t a lot of franchises at least in the first couple of years that are in that range. There are folks out there because this industry is such a high growth industry. So they are taking kind of a needle in the haystack, very, very highly targeted approach to find those high EBITDA opportunities.
16:29 – Ed
So does the franchise, I know most of them have making the first right of refusal. I mean, do you guys, with what you are seeing on the horizon especially industry consolidation and things like that? I mean in your space are you exercising often or turning them into corporate operation?
16:55 – Jeff
Yeah, we’ve done a little bit of it here at Caring, Ed, historically because we have 5 corporate operations now so we have that infrastructure base. As a rule, I would say that we most of the time have not exercised it. It’s really been more if there have been extreme circumstances, owner health, death...
17:16 – Ed
Yeah, oh yeah.
17:18 – Jeff
Those types of things.
17:18 – Ed
So when you, like for the younger ones, the younger buyer pool that you mentioned, you know I do some teaching over at Butler University. And the entrepreneurship through acquisition, that’s a thriving area. And I’m sitting here, and I’ve got kids that are getting to be close to this age and I see them as kids, and I’m like, "how in the world are you going to come in and coach and lead and so on and so forth?" But I can totally see why a franchise might make the most sense because you are able, you have that backstop of the process more so than the personality of the owner. You know what I mean, or the competency of the owner and the 2 of you can learn together. I mean is that what you see too?
18:12 – Jeff
We do. We do. And it’s a little bit of kind of stemming their enthusiasm and you may have some seen in some of the Butler classes where it’s almost like they come in and they think they have all the answers. Snd there is 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 really going to help me." So I think as long as we kind of reach that point in the middle, then it works well.
18:46 – Ed
Well from a financing standpoint does the SBA... do you have any preferred folks that you work with as far as getting you guys financed?
18:56 – Jeff
We work quite a bit with Guidant.
19:01 – Ed
So the 401K, you’re using the 401K mode?
19:04 – Jeff
Yes.
19:05 – Ed
The reason I bring that up is any more the acquisition, you’re only required to put 10% money or 10% of your own equity in to buy, to acquire a business. And as a taxpayer, it makes me kind of cringe, as a deal guy thumbs up man. Just keep rocking. And I only bring that up for 2 reasons.
One that the financial barrier to entry into a business is lower, and having the backstop of A – the seller, and B – the franchise, seems to make so much sense for someone to buy in. But, the other side, and I don’t know if you saw this, the SBA has 2 programs out now where it has, if you’re buying, say one franchise wants to buy another franchise, there is no money from the buyer that is required. And they can buy an existing franchise as long as you’re in the same NAICS code for no money, assuming you have a decent ballot sheet. So that’s a big thing as far as from my standpoint to share with you is that your franchisees could be growing through acquisition fairly, I won’t say easily, but, you know, they’re already in the system. So it’s something to consider.
And then the second thing that they just came out last Wednesday and its effective 11/15/2023 is partial ownership buys. So, before, they were requiring almost like an ESAP where the business owner was required to personally guarantee the debt of the buyer so they default, there is recourse to the selling partner. But now, they can stay with the business, they can take the chips off the table. So for those franchisees that are considering selling or they’re at that age or they have a partner or they are looking at retention or they’re looking at all kinds of reasons why you would want to sell a fractural interest to your business, it’s a good time to be doing that too.
21:36 – Jeff
It definitely creates more of an interim step if someone doesn’t want to exit completely. It’s kind of a first step to take out of the business but still kind of stay involved, you’re right.
21:47 – Ed
So how does the key employees, what the trajectory of a staff person? I get a lot of questions about how do I take my key employee and make them not only sticky, but also perhaps my succession plan? Are you seeing any, here’s how you identify this person.
22:15 – Jeff
Yes. We actually have a program here that we have introduced in the last year called Manage to Own. We’ve seen that in past franchise industries before that really attacks exactly what you’re talking about. So it takes, in our world, an Agency Director, kind of general manager that runs each of these businesses on a day-to-day basis. He or she the normal progression for them is to earn equity or to obtain equity and become at least a partial minority owner, like you said, it could even be an exit strategy to the current owner and help that current owner exit completely 3 or 5 years down the road.
22:56 – Ed
Wow. Do many franchises have that? I don’t think they do.
23:01 – Jeff
Um, you know I’ve been doing it at all 5 industries over the years. I first started in truck and car rental with Budget Truck Rental and Thrifty Car Rental, and we had it back then. I’ve always seen that as being a real appeal. It’s not going to be a massive feeder but if you have a really good solid manage to own program, you should be able to do 6, 8, 10 awards a year.
23:29 – Ed
Yeah. Well the reason I share that or ask that 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 4 walls. It just surprises me that, if your franchise is worth its salt, that you would know about this program to signal that this may be a candidate. So, that’s really interesting.
24:07 – Jeff
Yeah, it’s kind of back to what I was mentioning before, too. Even on the caregiver’s side, it applies to staff. So you know, agency directors, care managers, marketers, the other kind of management side of each of the home care businesses, they want that same thing. They want professional development, they want training, they want career progression. So we’re using Manage to Own on the frontend recruiting those staff management positions so they know, "hey in 2, 3 to 5 years that’s what I want to be a part of."
24:39 – Ed
You know, and granted, this is going to sound weird but I don’t mean it too. So in a lot of franchises that the customer tends to end up being the franchisee. They tend to be the buyer. Now granted, I’m not 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?
25:11 – Jeff
Oh yes. Yes, in fact that’s a great, great point. So about 10 to 12 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 or daughter who really is the true decision maker now and has been for the last 8 or 10 years. Well, to your point, more and more now it’s like the adult child found Caring Senior Service to care for their mother or father. And in doing so, they realized, "oh my gosh, this is a whole industry. There’s a whole business here," and it does pick up the appeal. I looked a couple of weeks ago and 98% of our current owners were initially a client. Yes, so it’s a big, big draw.
26:06 – Ed
But do the franchisees know that? I mean, you know what, you may want to do a great job because that person may be your exit out of the business down the road. Do you think of that or not?
26:20 – Jeff
Yes, I would say it’s kind of a mix. Part of our introducing this program in the last year was really helping educate that exact point that if you’re thinking about your exit, the first 2 questions I ask them are “what does your buyer look like?” So let’s at least understand what that profile looks like of who they’re looking for. And the second question is “have you talked to your existing staff?” Because the existing staff may either know someone like that or they may raise their hand.
26:52 – Ed
Yeah, interesting. So you’ve got your staff. You’ve got the clientele you’re serving as a potential buyer pool, and then you broaden to the planet. Interesting.
So, recurring revenue. This is, I mean, this is why everybody wants your business. It’s driven by recurring revenue. It that true or not? I mean I know partially it is. You know, because you have engagement and you’re serving on a regular basis. But is that really what drives the value?
27:31 – Jeff
I would say it is one of the key factors. The short answer is yes, but. So we serve clients on an hourly basis typically at 2, 4, 6-hour minimum all the way up to including 24/7 care providing care around the clock, and everything in between. The average client takes 24 hours of care per week. And we’ll have clients for one or two weeks and sometimes one or two days if they are in bad, bad shape. But the average client right now is sitting at 9 ½ months. That’s how long we take care of them. A lot of people start at 6, 8, 10, 20 hours a week and then become as their conditions worsen 60 80, 90, 100 hour per week client. So it is recurring revenue. We do have those quick in and out clients and that’s just 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-term client too.
28:38 – Ed:
So it’s funny well I shouldn’t say it’s funny but, this is years ago, when my mother was deteriorating, I reversed mortgaged her house. And I’m telling you whatever I needed to do to keep her in that house was what was going to happen. And my sister and I were a little bit sideways because she said she could get better care in a facility. I was like I will burn through every nickel to make sure she’s here. And granted, I did a pretty good job of it. But at the same time, you know, everybody wants to. Who wants to go to a facility if you don’t have to go? As we see the baby boomers continue, I would imagine it is only going to amplify this industry.
So, how do you grow? I’ve known you for a long time and a good operation. Anything that you’re associated with is a good place to hang out so how are you growing and where?
29:58 – Jeff
We’re growing really in a number of different markets in a number of different ways. So our internal growth through existing franchise owners who are buying or securing a second, third, fourth territory, we’re definitely growing through outside or organic sources. We’re big believers in supporting 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 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 to Own externally too. Lastly, we are targeting specific occupations like physical therapists, occupational therapists, because we already have several of those that are existing very successful franchises.
31:09 – Ed
So when someone looks to buy something like this, 2 things. On the left side of the T chart, you know, we talked about recurring revenue but what makes the business a good target? And earnings are the obvious one. On the other side is, what are the red flags that a normal due diligence doesn’t shake out?
31:44 – Jeff
Sure. So I think on the left side you have is a diverse of a referral source base as possible. So meaning, if a lot of their business is a Medicaid state waiver or 1 or 2 key referral buckets. That’s a limitation. You really want a very diverse referral source base so that you’re getting clients from a lot of different original sources. The team, the longevity of the team, the aspirations of the team, you know kind of the current state of the management team, I think is a big plus. Also managing 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 points I just said. So if you have few referral resource buckets, if your caregiver retention number is very low, and the turnover number is high, if you haven’t seen aggressive marketing, then of course, the metrics are being placed to back up everything that the seller is actually telling you.
33:02 – Ed
So where I was going with this, I wanted to know from a working capital standpoint. I mean, is this a difficult business to fund? I mean you have a client, you perform the service, there is billing. Is it done on a weekly basis or monthly so you don’t have the cash flow challenges?
33:33 – Jeff
Yeah. So I think the short answer is that it’s not a difficult business to really fund. Our new franchise is $116,000 to $176,000 as the working capital range, Item 7. The existing business as a model at Caring, we bill every 2 weeks. And we are predominantly 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 0.
34:12 – Ed
Okay. So since I’m coming to the end of all my questions, one of the things I‘ve asked, so you’re I think episode 105, 106, and I’ve asked this since the beginning. If you had one piece of advice that you would give business owners that would have the most immediate impact on their business value and saleability, what would it be? You’ve seen a lot of them.
34:42 – Jeff
Yeah, I would say far and away, Ed, make a stronger, higher, deeper reinvestment in your people. I see a lot of owners that almost try to systematize things and really don’t maintain a high human aspect. And if that team is not there and when the owner exits, that buyer has very little really to back everything up.
35:11 – Ed
Nice, that’s a good one. So what’s the best way we can connect with you?
35:16 – Jeff
Well my email is jbevis@caringinc.com. I certainly welcome folks to go to our website at any time. I 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.
35:41 – Ed
You know what, I’m glad you said that because what the listeners don’t know is just how generous you are with information, with no strings attached. That to me is why you’ve got a 38-year career in the franchise world my man. We’ll have links to you 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 a place that we have listeners all over the country. Is there a spot that you’re looking for?
36:18 – Jeff
Gosh, not really. We have over 500 territories available in the U.S. today. We’re at 57 markets in 17 states. There is no state or even city even close to saturated and with a growing senior population, we’ve got decades of growth so we would welcome interest anywhere.
36:38 – Ed
Right on. Well hopefully we’ll find you one or 10 from this podcast. Thanks my man. Appreciate the time.
36:48 – Jeff
Thanks for having me Ed.