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Home care franchises are hot, hot, hot

They rank among the fastest growing and most profitable

The home care industry has enormous potential for business people. One segment of the business world has already figured this out: franchise business owners.

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"Home health care franchises are thriving due to a growing demand for their services derived from both demographic and economic factors, including an aging population, the rising cost of traditional care and a desire by many seniors to receive 'in-home' care rather than receiving care in a nursing home," said Matthew Haller, vice president, public affairs and chief of staff to the president and CEO of the International Franchise Association, a member organization representing the franchising industry.

Last spring, listed home care service franchises for senior care as one of the hottest franchise sectors to watch. The magazine noted that the home care franchise sector, although hardly making a blip 15 years ago, is the single largest category in its Franchise 500  -  a ranking of the country's top franchise opportunities  -  with more than 34 companies represented in the ranking process and 24 of those actually making the ranking.

Around the same time, the Franchise Business Review, a national market research firm researching franchisee satisfaction, ranked home care franchises for senior care as one of the top five most profitable franchise sectors.

"The median initial investment required to open a single senior care franchise office in 2012 is $66,148, and the potential return on investment is significantly higher than many other franchise businesses," noted FBR's senior care franchises report. "It is not uncommon among the top senior care franchises to build gross revenues to a million dollars or more, with gross margins of 30 to 40 percent."

"Home care in general is just exploding," said Shelly Sun, the CEO and co-founder of BrightStar Care, a leading home care franchise.

Sun started BrightStar in 2002 with her husband and expanded to a franchise business model in 2006. In 2009, BrightStar was a $52 million business, she said. In 2011, it was $181 million and she forecasts 2012 will find the company around $215 million. And she expects continued rapid growth through 2050, due mostly to the aging population.

But the key to continued success is not in demographics alone. "Home care is going to be a great industry," she said, "but I think where the real value is going to be is in the ability to influence patient outcomes, and that is going to be with nurses and high clinical oversight and coordinated programs."

Home care franchises have historically not required a background in healthcare to make a go of it. But Sun believes offering families a full-service experience, from the traditional personal care services to skilled medical services, is what will give companies like hers an edge.

"I think what you'll start to see are companies that are really focused only on companion care and personal care versus being able to have the skilled care and nurse oversight differentiation losing market share to BrightStar and companies like BrightStar that have the clinical component to our business model," she said. "If I was looking to invest in the sector, I'd want to be looking at companies that are able to influence the entire continuum of care, not just the companion care, which is where a lot of the industry has been."

Offering a continuum of care is a smart move in light of the push within the healthcare industry toward reducing hospital readmissions and keeping seniors and those with disabilities in their homes instead of in skilled nursing facilities noted John Stein, national market executive, for-profit healthcare, Bank of America Merrill Lynch. Home care, he said, "is one of the large opportunities to really bend the cost curve for healthcare."

To bend the cost curve, home care businesses will by necessity have to expand to offer more clinical services, and with more skilled medical services there will be more regulation, he said, and savvy business owners will need to think ahead about how they will finance the greater scrutiny they will subject to.

If anything will slow down the meteoric rise of home care franchises, it could be regulations said Jay Perron, vice president of government relations and public policy for the International Franchise Association.

Like many small businesses, home care franchise owners are concerned about regulations resulting from the Affordable Care Act, but the most pressing concern is the current attempt by the U.S. Department of Labor to extend minimum wage and overtime protections to in-home workers who currently fall under the companion exemption in the Fair Labor Standards Act.

"The exemption allows the industry to provide 24/7 care for seniors and the disabled while keeping the cost affordable," Perron said. "You can imagine how the increased cost will affect the industry and the people they provide service to. In all likelihood, seniors will have to go to the 'gray' market in order to find reasonably affordable care."

Another looming challenge, noted the Franchise Business Review  -  likely brought on by the sector's success  -  is increasing competition in the market. A decade ago, noted the FBR, there were six home care franchise brands but now there are more than 40.

With the increased competition, summarized FBR's report, "(f)ranchises will need to work extra hard to make their business stand out among others. But with the right support people, a strong focus on delivering exceptional care and the right franchise brand, franchisees in this sector have the potential for a very successful business."