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Home Care Agency Acquisition: Pros and Cons

agency-acquisitionWhen you are ready to grow your home care business, strategic decision making is your best friend. You need to evaluate the pros and cons of your potential next move, including budget, time requirements, likelihood of success, and so much more. While growth comes with inherent challenges, making informed choices can help you overcome some of the initial worries about what your expansion will bring with it.

One choice you may need to consider is acquisition. On the flip side of that is opening a satellite branch. We're going to examine the pros and cons of each and share advice from Kunu Kaushal, ‎founder, partner and CEO at Senior Solutions at Home Inc., and president of the Tennessee Association for Home Care.

Which is Better For Your Home Care Agency: Acquisition or Expansion?

While both paths toward growth might suit your agency at different times in your lifecycle, only one is right at this very moment. The most important way to gauge which is a better fit is to understand your strengths and weaknesses, says Kaushal.

What to Consider: Organic Growth

Organic growth (expansion) requires your organization to already have an operational system in place, one that functions without your personal, constant attention.

"If you've built a brand and system and grown your clientele and your caregivers, but are a one-person show in management, then it might be hard to put yourself in two locations at once," says Kaushal. "To get away from leading every step of the way, we essentially created subject matter experts."

Kaushal's team discovered their go-to person for each process and documented each step, which led to feeling more comfortable with an expansion.

"If you're an agency owner who's great at systems, has an established business, and can run your operations remotely, organic growth is the way to go," he says. "There's less capital involved in opening a new location, if your home branch can support operations at that second location. You will have less money tied up in the short term, and you're able to get out what you put in."

What to Consider: Acquisition

If you're an agency owner who doesn't necessarily have those systems in place, but want to grow quickly and you have the capital to move, an acquisition might make more sense. But there's a lot to consider before you decide if acquiring another agency is the right choice for your business.

"In some cases, you might be under the gun for growth and not have the ability to achieve it organically because the market is saturated. And in a heavily saturated market, it's in almost everyone's favor to reduce the competition," says Kaushal. In those cases, acquisition makes the most sense. (In other cases, he notes, you might feel you can take that business away from your competitor, rather than purchase your competitor. In those cases, expansion makes more sense.)

"But you don't want to acquire a business just because it's good at something you aren't good at, Kaushal warns.

"If your only intent is to basically make up for any of your own shortcomings, don't acquire a company. Don't say, 'We don’t market well but we’ll buy another company and that will solve the problem!' You might be drawn to an agency because of its positioning in making up for some operational gap you have, but acquiring that company can result in culture shock. If things don't fit in your system, for example, it becomes a bigger liability.

"Let's say you have a bad sales team but a great operations team. So you buy a company with a great sales team. But it looks a lot different when it's yours," says Kaushal. After acquisition, you now need to manage that great sales team, and that's an area you haven't thrived in in the past. That can cause friction of sorts.

Brand Integrity

Another major consideration when deciding which path makes sense for your business involves your brand health. Which brand will prevail in an acquisition? This is something you need to choose ahead of the deal, and it can be a heartache. Perhaps the brand you acquire will want to leave a legacy behind. But if you're a small, efficient business, you likely don't have enough resources in your operational arsenal to support multiple brands. Consider what it might look like, for example, if you have one billing manager who supports both brands, but only has one email signature. This may feel like a small nuance, but you'd be creating unnecessary inconsistencies and risk losing client trust as a result.

Additionally, understand whether or not the business/brand you want to acquire is built around the presence of one individual. If you purchase it and the owner leaves, would the business leave too? Further, ask yourself whether or not you're OK with the concept of your brand changing as you grow in this way. Are you comfortable with your business becoming more and more corporate, and you becoming less and less the face of your business as you work to manage a larger team?

Scaling

Before you can acquire another agency, you must have done everything possible to get yourself ready for that level of fast scaling. Specifically, is your software ready to manage an influx of 100 or more new clients in a day? Can your payroll process cover the increased number of personnel? "A good rule of thumb," says Kaushal, "is that for every 20 percent of growth you should look at all of your business practices, assess how the growth has changed those practices, and decide what the impact will be if you grow another 20 percent."

Is Your Time Available?

This consideration is pretty simple. Do not acquire a new agency if you have no time and you're already struggling to stay above water. Only move toward acquisition or expansion if you're available.

"If you're an owner who feels like more than half of your time/energy is available to do other things, that's a good indicator you have the time to invest in yourself and the company on some level," says Kaushal. "You might want to spend time in a different market or you might want to acquire a small agency to test out the acquisition process."

Capital Investment and Exponential Value Gains

As mentioned, with organic growth, you can get out what you put in. With an acquisition, you're using a lot of capital up front for an as-yet unknown result. "If you have the appetite for short or long term debt and you’re comfortable with that, the value of the business can grow at an incredible rate. That's because there are some efficiencies involved in scaling," says Kaushal.

"We now have more hands on deck, more schedulers available to handle issues, and where in the past we've had coverage issues on weekends, we now have someone in the office working seven days a week to address any concerns that may arise," he says.

The fact that you'll be entering a market where the acquired company has already invested time can be a significant benefit. You'll already know that they've worked to vet and hire the right caregivers in that market, for example.

"However you approach, the value of your business can exponentially grow," says Kaushal. Just be sure you're ready.

 

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