Adult Day-Care Centers

HOW TO EVALUATE THE TRUE WORTH OF Asigned.  Some years it is two weeks, but others have
BUSINESSgone as long as two and a half months.  Imagine
PART 5 of 21having a $50,000 monthly payroll and $10,000 monthly
"Adult Day-Care Centers"rent and no income for two and a half months.  Of
By:  Willard Michlincourse, once the budget is approved they receive all
Is the claim that there is big profit in Day Care Centers,of their money instantly.
too good to be true?Seniors who were qualified before 2007 were no
Are Adult Day Care Centers making the big moneylonger eligible for the State of California to pick up the
they claim?cost.  The enrollment numbers in the centers took a
Last year I was asked to do a business evaluation anddrop at that time because this, but now that change
financial review of an Adult Day Care Center inhas settled out and is no longer an issue.
Ventura County and render an opinion as to theOf course, when you are dealing with Governments
profitability and viability for a client wanting to buy thisand Legislators, things change all the time.  Your
business for the full asking price or for any otherbusiness can be outlawed overnight.  This is one of
price.  I was told before I began, that it was clearingthe big risk factors.  The other is that the State of
$50,000 per month profit, and the asking price was $3California could go bankrupt in this current economy. 
million.We could say that is not likely, but can we say it is
Up to that point I had never reviewed a Day Careimpossible?  Remember when Orange County filed
Center, but I had prospective buyers that had beenbankruptcy?
studying the industry, and telling me all about what theyLets get back to the ADCC in Ventura.  My
had learned in their investigations.  They still wantedevaluation showed that the $50,000 profit the seller
my opinion as to the viability and profitability of buying atalked about was his projection for the month.  We
Day Care Center.  They wanted a second opinion aswere in the middle of that month at the time.  Up until
to what the risk factors are in buying a Day Carethe current month the business had been making
Center.  Business buyers rarely used to look at the$30,000 per month.  Since my client's resulting offer
risk factor of the businesses they want to buy.  I thinkwas at a substantially lower price, it was refused.
now that has changed.  The risk factor being what isSix months later another client hired me to review the
the likelihood of what is happening today will continuesame business.  This time I received more up-to-date
into the future at the same level.financials, allowing me to understand what the business
One of the red flags in Summer 2007 for Adult Dayhad actually made, rather than the projection I had
Care Centers was that a very large number of themreceived earlier.  The business never reached the
were for sale.  Why were they for sale was the$50,000 level, but did reach $45,000 three months
subject of my research project?  What I determinedlater.  The profit, as calculated by the seller, was very
was, known to every Day Care Center owner, butcreative but not real.  I determined the correct lower
was never mentioned.profit.  The asking price was reduced to $2 Million and
The big risk factor for this industry is cash flow. my second client offered $1.2 Million, which was also
Every year the State of California has to approve itsrefused.
budget.  If the budget is not approved, all employeesI am waiting for the next price change and my next
and vendors, which included ADCC, (Adult Day Careclient.  We will see what happens then.
Centers) do not get any payments until the budget is