Understanding Home Care Valuations
Home care agency valuations are typically based on a multiple of your earnings. The two most common metrics used are:
SDE (Seller's Discretionary Earnings)
Used for smaller, owner-operated agencies. SDE = Net Income + Owner's Salary + Owner Benefits + Non-recurring Expenses + Interest + Depreciation
Best for agencies under $2M EBITDA
EBITDA
Used for larger agencies with professional management. EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
Best for agencies with $2M+ EBITDA
What Drives Your Multiple?
Not all home care agencies are valued equally. Here are the key factors that can increase or decrease your valuation multiple:
Payer Mix Diversity
Agencies with diverse payer sources (private pay, Medicare, Medicaid, VA) are more valuable than those dependent on a single payer. Private pay is often preferred for its higher margins and lower regulatory burden.
Owner Independence
Agencies that can run without the owner's daily involvement command higher multiples. If you're working 60+ hours/week in operations, that's a red flag for buyers.
Revenue Growth
Consistent year-over-year growth (15%+) signals a healthy business with upside potential. Declining revenue significantly impacts valuation.
Documented Systems
SOPs, training manuals, and documented processes make your agency transferable. Buyers pay more for businesses they can operate from day one.
Caregiver Retention
Low turnover (<30% annually) indicates strong culture and reduces transition risk. High turnover is expensive and signals operational issues.
Red Flags That Lower Value
Single Referral Source Dependency
If more than 30% of referrals come from one source, buyers see concentration risk.
Key Person Dependency
If one person (other than the owner) holds critical relationships or knowledge, that's a significant risk factor.
Regulatory Issues
Past survey deficiencies, compliance issues, or pending investigations can significantly impact or even kill a deal.
How Long Does It Take to Sell?
The typical home care agency sale takes 6-12 months from listing to close. Here's a general timeline:
Months 1-2: Preparation
Financial clean-up, documentation, valuation, marketing materials
Months 3-6: Marketing & Offers
Confidential marketing, buyer meetings, LOI negotiations
Months 7-12: Due Diligence & Close
Buyer due diligence, final negotiations, legal documentation, closing