$800k profit in an exploding industry - let's break it down

Hey Hustla’

Today I want to talk about a business for sale that has me intrigued.

Here’s a quick summary with ‘23 financials:

• $5.5M revenue (up 18% from ‘22)

• Net profit: $861k

• Franchise business, franchisor gets an overall 8/10 rating from 3rd party ratings services

• Asking price: $6M (more on that in a moment)

• This business has shelves full of awards from CoC, readers choice, tons more etc.

• Exploding demand and huge industry tailwinds

• One MASSIVE red flag

Seller has agreed to an earn out. She says that management is in place but is still working full-time. She’s selling because she’s 71 and ready to retire. The office is available to purchase too for $500k.

The sale price is really high, as you probably have noticed, but they have a solid explanation. The government mandated rate for their hourly pay just got raised almost 50%. That accounts for half their billings and, according to them of course, should skyrocket profits by an additional $1M. Hmmmmmmm

So what is it?

It’s a Comfort Keepers franchise, which is an in-home senior care provider. The 50% raise in hourly rates comes from the Veteran’s Administration, which raised rates from $47 to $69. The seller (wrongly, IMO) says all this extra money will go straight to the bottom line. That is ridiculous, of course, as the actual caregivers are going to demand a bigger piece of the pie.

But, it’s still a massive opportunity in an exploding niche. The oldest Baby Boomers are just now 78 years old. As the bulk of this generation gets into its 70’s and 80’s, they are going to need more and more care - and most will prefer to have it done in their own homes.

Industry associations predict 8% annual growth for the entire industry. That is BIG. That’s right in line with the predicted growth of e-commerce and online shopping over the next 10 years. Only things like AI and electric vehicles get into the double digit/year growth numbers. Most things tick along at 2-3%.

But it’s also the problem, and that brings me to the massive red flag: this business has 200 employees. 200!

When we look at a business we need to understand: what does this business really do? You’ve probably heard the cliché McDonald’s is actually a real estate company that sells hamburgers. What does Comfort Keepers and these in-home-care businesses really do?

They are a hiring and training business.

You have to have a massive pipeline of new caregivers and a well-oiled machine to train and place them. And you have to be really, really good with people. Hundreds of employees and thousands of clients.

With 200 employees you can get your butt that 2 of them will be stealing from your clients, at least 20 of them will be stealing from YOU (wage theft), and 50-100 of them will be calling out sick or just plain unreliable. It’s a human resources nightmare, but the rewards are there for the right person. Connect with the local college nursing program (if they’re not already) and you might have a killer pipeline.

My friend JT Singh, who owned a franchise like this recently, came to many of the same conclusions. (He is a must-follow on Twitter if you’re considering or involved with franchises - the dude knows his stuff)

I’m think I’m going to pass on this one but I believe someone with a hiring and training background or some medical training will scoop this up and crush it for the next decade.

Here’s some other interesting stuff I found this week:

My friend Baird, the Sultan of Storage, gave away his entire underwriting playbook last week. This is great if you’ve ever considered storage as an investment.

Helen Guo did an interesting thread on buying a $1.3M business with $20k down. It’s a great example of buying a business that feeds off your primary W2 job (although this particular one is…. interesting).

If you think your W2 job is safe and you don’t really need a side gig, watch this video and see how a billionaire thinks about headcount and YOUR job. It’s one of those tragi-funny videos, but a wake up call for many employees.

Health stuff: remember the ‘body-positive’ push over the last few years? Where obese influencers tried to convince us that they were A) beautiful and B) healthy? Yeah, they keep dying before they hit 40. This is not meant to dunk on them but to emphasize the not-so-obvious: being overweight is not, by any measure, healthy and you’d better get it under control if you want to live a long, happy life.

Random: I loved this podcast with Barbara Corcoran of Shark Tank fame. She’s funny, whip-smart, and tells great stories. Tons of take away here too…

That’s all for this week…

Kriss Berg the Car Wash Guy

PS: as always hit me back with your thoughts and comments.