Business Booming for Home-Care Franchises

Nursing home alternatives cater to the growing number of baby boomers in retirement.
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As baby boomers reach retirement age, home-care franchises are seeing booming business.

Visiting Angels, a nonmedical home-care agency, spotted the aging-boomer trend 10 years ago when the economy was tightening and costly nursing homes began losing favor.

More recently, people's reservations about nursing homes were brought into the spotlight by the Carlyle Group's protested plan to buy Manor Care Inc.(HCR) - Get Report.

"More seniors are choosing to stay at home," says Peter Notarstefano, director of home and community based services at the American Association of Homes and Services for the Aging (AAHSA). The number of older adults in nursing homes declined from 4.2% in 1985 to 3.6% in 2004, he says.

Heart and Profit

"The days have passed when adult children stay in the same community as their parents," says Connie Hill, 48, a Visiting Angels franchisee. Her caregivers -- also referred to as home health aides -- sub for absent family members -- coordinating doctor's appointments, giving pill reminders or picking up groceries.

Hill chose Visiting Angels for its cute name and strong market potential. "We're here to serve but also to make money," she says. "More businesses popping up recognize that

senior care is a wonderful business model."

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Hill began working out of her St. Louis basement five years ago. She made $8,000 net income her first year, but that's increased almost tenfold. She attributes her strongest sales in the last three years to growing demand from seniors who don't want to leave home, but have nobody to care for them.

At an average of $18 an hour, Visiting Angels services, which range from companionship to personal hygiene, are much cheaper than adult day care centers which average about $61 per day, according to a 2007 survey by

MetLife

(MET) - Get Report

.

Angels Advertise

"A great PR machine is priority number one," says Matthew Amici, director of franchise development for Visiting Angels. The franchise's cooperative advertising fund, taken out of each franchisee's monthly revenue, generates $1.2 million for branding and marketing annually and produces 4 thousand leads per month, giving franchise owners an edge over big names in the biz like the international

Home Instead

.

Visiting Angels' $25,950 franchising fee covers training, the most important aspect of a successful franchise, says Amici. Hill is most satisfied with the marketing training she received. "They gave us a roadmap of groups we should market to using proven methodologies," she says.

The franchise's 2.95% royalty fee is low compared to the service businesses sector average of 6.1%. Amici estimates most franchises recover their initial investment and begin turning a profit in the first two years.

Waning Workforce

But in the midst of unprecedented demand, the whole home heath care industry struggles with one glaring issue: A shrinking employee pool.

While licenses aren't required in all states, Hill searches out state-tested nursing assistants and certified home health aides. These employees give Visiting Angels a competitive edge, she explains, but they're harder to come by.

At an annual Visiting Angles conference last year, the main question was, "Will we soon scrape the bottom of the barrel?" says Hill.

While the number of Americans age 85 and over will increase 40% by 2015, demographers predict the 25- to 54-year-old workforce won't increase in size at all. Vacancies and turnover are posing a serious problem, says Notarstefano, because the work has little prestige and isn't steady.

"No agency can guarantee anybody hours," says Hill. Death or hospitalization of the client often leave the field staff worker with a gap in employment and a change of hours. "You just hope the pipeline of clients keeps coming."

For now, the pipeline looks healthy as Visiting Angels expands its 300 franchises to Canada and South Korea. In some states, franchisees are reporting too many applicants, says Amici. Seniors are living longer, and demand is strong, says Hill, but she hopes Visiting Angels will follow others in the industry and begin training and licensing its own employees.

"Franchising for adult programs is big business right now, as long as the quality stays with it" Notarstefano says.