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Is there a single right way to run a home care agency? We sure don’t think so. That’s why we’re interviewing home care leaders across the industry and asking them tough questions about the strategies, operations, and decisions behind their success. Join host Miriam Allred, veteran home care podcaster known for Home Care U and Vision: The Home Care Leaders’ Podcast, as she puts high-growth home care agencies under the microscope to see what works, what doesn’t, and why. Get ready to listen, learn, and build the winning formula for your own success. In the Home Care Strategy Lab, you are the scientist.
Miriam Allred (00:10)
Hey everyone, welcome back to the Home Care Strategy Lab. I'm your host, Miriam Allred. It's great to be back with you in the lab. Thanks for joining us. Today in the lab, I am joined by Adam Shriver, the client CFO at the Home Care CPAs. Adam, welcome to the show.
Adam Shriver (00:25)
Thanks for having me, Miriam. Excited to be here.
Miriam Allred (00:28)
Yeah, likewise. I've known Dana and the team over the years and you were brought on board, I believe, kind of early twenty twenty six. So this is our first time, you know, in an interview setting. But it's great to meet you and excited to get you in front of the audience and learn a little bit about you and about your expertise in kind of the financial side of helping these home care businesses.
Adam Shriver (00:48)
Yeah, likewise. And on a on a personal note before joining the home care CPAs, I worked in public accounting at one of the big four firms. I was in their transaction advisory space. I did a lot in healthcare, but I hadn't dug in as deep in home care. So listening to your podcast was one of the big ways that I like actually learned about the the industry and really got myself immersed in it but before before starting. and then, you know, l love keeping up and he hearing all the guests you bring on.
Miriam Allred (01:27)
Yeah, appreciate that. I told you before we started recording, but I think the reason why I love this industry is really the people and even in six months you've become acquainted with probably hundreds of home care owners at this point and just it's it's a great industry. There's a lot of really great people, the work that they're doing is really impactful. And I feel like, you know, people like us, we get to indirectly help the the agencies that then in turn help the families and the clients and the caregivers. And so it's just really fulfilling. So you just kinda teased it there, but talk talk a little bit about your background. Tell everyone a little bit more about yourself and where you're located and what led you to the home care CPAs.
Adam Shriver (02:03)
Yeah, absolutely. I am located in Kansas City, originally from Omaha, Nebraska. prior to joining The Home Care CPAs I worked at PwC, which is one of the big four public accounting firms. I was in their MA Transaction Advisory Group. and I specialized in business valuation. So helping companies evaluate how much their own business was worth, other businesses were worth.
and then valuing the assets of of those business. So how much value their customer relationships are, their technology. and so it's it was, you know, definitely a different space, but you know, I even it being at the home care CPAs, you know, the core of what we do is focused on you know, re recurring accounting services, fractional CFO work, which which we'll talk about as well.
but I love talking with business owners about like the valuation side because I I think that's a really common question that business agency owners have is how how much is this business that I'm building actually worth? and typically it's you know one of their biggest sources of if not the biggest source of like their wealth and and personal income. and you know.
even if they're planning to operate it for for five, 10 plus more years, they kind of want to know like, hey, is is what I'm building valuable? and I I love talking with them and just kind of being a sounding board about things that they can do and ways that we can increase that value. So then when they do decide to to retire or or exit or you know
At least they they have a long term sense of like what the value is that they're they're building. I I
Miriam Allred (04:03)
Yeah, fantastic.
Adam Shriver (04:04)
love that aspect of it. and that's what I specialize in before. And then now I'm primarily working as a a fractional CFO here at The Home Care CPAs.
Miriam Allred (04:15)
Yeah, tell everyone a little bit more about what that means.
Fractional CFO. In my experience, I feel like there's been a lot of a lot more fractional roles like since COVID. And I think that was just like the workforce went through a pretty dynamic shift. and I've kind of wondered like, are these fractional roles like, you know, trendy or kind of like a buzzword? Please correct me if I'm wrong. But like tell tell everyone a little bit about like what a fractional CFO does and what that actually looks like in practice.
Adam Shriver (04:41)
Yeah, d definitely. fractional CFO work, maybe just starting with a couple definitional things. The people sometimes get hung up on the the fractional part of that. I'm not like a part-time CFO. I'm really kind of an an outsource CFO. So as opposed to a full-time in-house hire. and so
When I'm looking at like an agency and they're in that four million, five million revenue range, they're typically starting to encounter some a higher degree of just com financial complexity. They're thinking about location expansion, payer mix adjustments. They're doing things that are a little bit more complex. and up until that point, they might have had an in-house.
bookkeeper or an outsourced bookkeeping firm that they've had help them with their their finances. and I I they do a good job, you know, keeping the the the books, you know, clean. you know, there's always, I think, opportunity for for improvement when when you bring in someone else to look at it. but really for for those like more strategic questions, that's where having
Someone with that expertise is helpful. and to hire someone with that level of expertise full time is is just honestly, it's a very expensive hire. And it just doesn't make sense for an agency at that size most of the time. So the better approach is to outsource it to someone who's gonna help you, you know, for eight, 10 hours a month.
You know, maybe more, maybe, maybe less, depending on your your needs. but who's gonna provide that sounding board? so then you get that strategic advice, but you don't have that full salary cost on your on your payroll.
Miriam Allred (06:56)
Mm-hmm. Yeah, this is a perfect segue into what we're going to talk about today. You and I both spend a lot of time with kind of these like mid size agencies. And I personally have been spending a lot of time with kind of the like four to six to eight million dollar range. And this group of agencies, they have hit this kind of you know, fork in the road. And there's all these growth opportunities in front of them, but like time and money are scarce and they don't know how to.
prioritize or like evaluate these different growth paths. And you mentioned a couple of them, you know, new payer mix, opening a new office, making a big, you know, salary higher, bringing on some sort of like new technology. Like there's there's all these growth opportunities that they need to evaluate, like which one makes sense and when and how and why. And so you, as you know, kind of a fractional CFO can come in and help them like evaluate these different growth paths. And then they can ultimately decide which is the best one. So that's kind of the
The framing for the conversation today is, you know, let's let's probably unpack two of those that I think both of us would say are maybe the most common, one being new offices when they're ready to expand kind of territory and location. And then also new payer contracts. Those are, you know, maybe the most two most common kind of like growth paths. And so I want to kind of talk through each of those. let's let's start with
when you start working with an agency that's in this boat of like evaluating growth opportunities, what does that conversation look like? What are some of the first questions that you ask them to just kind of like evaluate where the business is at and start to decide whether or not like now is the right time for them?
Adam Shriver (08:35)
Yeah, absolutely. I I think the the first thing I would say is I would I would acknowledge that they have a a lot on their plate. Pretty much every in my time in the home care industry, every single agency owner has a lot on their plate, it seems like at all times. and so that's where having having someone else to to come in and help be like the arms and legs.
can can be really helpful and having that sounding board so they're not, you know, making these big financial decisions that are gonna impact the the future of their agency you know, by themselves with without kind of having a a sounding board. So that's something I I love to to work with it owners and really help them you know see the financial impact and kind of the the various paths that
That we could take. and so first after kind of acknowledging like all those kind of competing priorities they have, really the second thing is I like to build a strong foundation of like what their current like accounting and books look like. because a lot of times it it's hard to evaluate like a new growth opportunity.
if you're starting from a position that it it is kind of on on shaky ground. So like if you're if your books aren't in a pretty good spot all already, then it's gonna be pretty hard to untangle and really make an educated evaluation of of a new opportunity. you know
looking at that four to five million dollar range, that is such a common, you know, plateau that that owners can hit. at that level, they might already have a couple offices open. they might have two offices and they're they're maybe even thinking about starting a third. and one of the if that's you know the decision they're thinking through
Probably the first thing I'd want to talk with them about is like, hey, let's look at the profitability of your two locations that you already have. And when I first start working with agency owners, more often than not, they don't know, they can't answer that question. They don't know is office A profitable or prof office B. and when we really untangle the numbers, we work through them with.
we we work through kind of all the the, you know, we we can kind of get into technical accounting pretty quick, but grounding it in like, you know, if you have an employee in office A working for office B, you know, you can pretty easily get into a situation where, you know, what is pulling in your QuickBooks, what's pulling in your books doesn't actually reflect reality. and so we have to like really untangle,
where costs are sitting and figure out if they're, you know, which location is profitable to to even begin with. and then that's kind of, you know, all the just groundwork before even start talking about like, hey, what what's that third office you're thinking about opening?
Miriam Allred (12:13)
Yeah. So profitability
is probably like the biggest kind of most obvious indicator, whether it's one or two or three, like profitability just like in general. I think that's, I don't know, like common understanding. Beyond profitability, things like retention, you know, other are there other kind of like numbers or indicators on the PL that you kind of look at to evaluate, like, okay, beyond profitability, there's some other maybe like red flags or things that we need to resolve before we move forward.
Adam Shriver (12:43)
Yeah, for sure. so I I think, you know, looking at the the the key metrics that we see come up, the the the one, the obvious one is just revenue. When we're when you're talking about like an agency size, that's often kind of the first number that people gravitate towards. And we're talking about, you know, four to five million dollar agencies. I think this conversation is is applicable for for many that are
lower than that and and even you know more complex larger organizations as as well. that example I mentioned, you know, an agency with two locations looking into a third. I recently worked with an agency that was over 10 million in revenue and had over six locations. And when we really dug into the numbers, their their profitability and view by location was still quite tangled.
And so we worked with them to really untangle that and understand, you know, what where they're where which offices were actually profitable and where other ones, you know, needed a bit of work. so so revenue is the the first one. and then the next number, the the the next numbers underneath that are profitability, as you pointed out.
And there are a couple key ways to measure profitability. Really, there are more than that, but there are probably two that I would say are are I focus on most. and that's gross margin and your eBITDA margin or operating margin. kind of are the the other way to look at it. I'll start with gross margin. Gross margin is just purely your your revenue.
Minus your direct costs of delivering care. And so that tells you, hey, after for for each dollar of revenue that I'm bringing in, how much I'm actually keeping after I've paid my caregivers. and so, you know, in the industry, we often see that in the the 40 to 50 percent range. If you're at 50 percent, that's very strong. but you know, we often see it.
a little lower, 40 to 45% is not uncommon. And it does vary by payer source as well. so there are a lot of factors that influence that. but basically you want that number to be as healthy as you can. So then you have enough money to cover your overhead, your office costs, like your admin salaries. And so that's a good a good place to start to make sure that like, hey, your your your rates are set.
appropriately to to be able to cover your costs. and then the the next margin that I mentioned was like an EBITDA margin or operating margin. EBITDA, I threw out a that's a financial term. It's earnings before interest tax depreciation and amortization. It's a common metric that comes up when when you're if you're looking to sell your business, they're often priced based on an e a multiple of EBITDA.
so that might be whatever your EBITDA is times five times six. And so that's gonna, you know, vary based on your your location and you know, various factors for your your agency. that really is just a measure of how much operating profit you're bringing in after you also pay out like your admin salaries, your rent, your technology expenses.
And that's really kind of more of a true picture of like how much money is is coming through to to you as the the owner after paying out those those costs. and there are a lot of factors that influence what that kind of that net operating profit margin is. revenue is is one of the biggest, so larger agencies tend to have
lower kind of fixed costs that they're able to spread over more clients, more cases. so if you're a bigger agency, that often kind of bodes well in terms of your your EBITDA or operating profit margin is higher. so that's that's a big number we we look at and and try to make sure we have a clean read on that. and then I think the other things you tease
At at in your question are great ones as well. looking at things like retention, looking at things like client turnover. those those are important operational metrics that really enrich the story when we're looking at the financial metrics. if if an agency has very high caregiver turnover, for example, they're often going to be spending a lot more money on.
recruiting and we see that flow through in their their PL and they have like a lower operating margin. So that's where you know we we triangulate like a lot of different metrics and those really kind of boil down into like those key profitability metrics that that I mentioned.
Miriam Allred (18:20)
Fantastic. Yeah. I think of like profitability
is a good indicator of like the stability of the business. But like you just said, there's those other kind of like metrics and indicators that really reflect like how stable the business is. And before you're gonna go pursue another growth opportunity, it's like you want the business to be as stable as possible. Granted, this is home care and there is inevitable turnover and clients pass away. Like that's all just like that's natural organic churn, but you want the business to be as stable as possible. is your recommendation that
Agencies of any size should watch both of those profitability margins, or do you think that EBITA and operational margin is more relevant to larger agencies?
Adam Shriver (19:04)
Yeah, great great follow-up there. I think both both margin metrics are very applicable for agencies of all sizes. and are are a good place to to start when you're when you're looking. And if if your margin is lower than what you want, then the the that next question becomes like how do we
unpack and figure out like exactly what leverage you need to pull to get it to where you want it to be. and I would say that the the maybe in response to your question, gross margin is doesn't vary a ton with your revenue size. So an agency at
A million in revenue versus an agency at five million in revenue might be targeting the same 45% gross margin. because that's really just what what you're billing clients minus what you're paying your caregivers. and the economics of that don't really change all that much, but based on your revenue size, since it's just kind of a marginal,
metric of of a single hour of of care. What changes a lot are that operating or or EBITDA margin at different revenue sizes. So I I won't overwhelm the the audience here with with too many specific numbers, but there are a few from from the latest Activated Insights 2026 benchmarking report that I
I think are relevant here. And it's very interesting when you look at the profitability by revenue band. So up to eight hundred thousand dollars in revenue for an agency at that really kind of at that very initial startup phase. Average or the the median operating margin is around negative four percent. So that's excluding
You know, any franchise royalty fees as well. I'm I'm assuming this is just kind of an independent agency. Negative four percent. So that means for the up to your first eight hundred thousand dollars in revenue, chances are you're operating at still a loss. once you get a little bit higher, once you're into that 800,000 to 1.6 million range, profitability starts to go up qu quite a bit. And
the the median's nine percent. I'm gonna I'm gonna jump forward to the the next band that I think is relevant. At that 2.8 to 4.99 million band, the average or the median profitability is 18%. So you can clearly kind of see the line from you know when you're first starting out you're at a negative four percent median.
By the time you're at 2.8 to 5 million, you're you're at eight, you know, 18% is where agencies tend to land. Once you hit 5 million plus, the median margin jumps up to 22%. So just that little extra amount getting into that 5 million plus tends to have over a 4% margin increase.
And there are a lot of reasons for that. I don't want to imply in this conversation that, like, you know, just adding more revenue is going to increase your margin. If your costs go up with it, that's not that math isn't going to work. But what we usually see is that there are real economies of scale that come with growth. So you have like a an admin team, and as your revenue grows, your
typically not going out and hiring more more and more admin staff for for every dollar of revenue. there are certain of course like kind of break points where you know you you need another office hire to to keep up with the additional volume, but those tend to not grow as fast as as your revenue. and so once you get into like that the higher you know revenue levels
You can really start to to increase the profitability of the the business because you're taking your admin costs, your rent, things that aren't like varying based on your your revenue, and you're just spreading that out over a larger client base and larger revenue volume. So I I think you know that that kind of gets to, you know, we'll we'll talk about
opening a new office, expanding payer mix, really those decisions at the end of the day are are meant to to fuel growth. and if that helps you kind of add more revenue and you're able to keep your costs down, that is money that's flowing through to the bottom line. more profitability and making your business more valuable at the end the day.
Miriam Allred (24:38)
So thinking about that
22% for about a five million dollar agency as their operating profit margin as the financial expert, is that a healthy number? Is that what you want to see? And and is there kind of like a range, 20 to 20 or 25% maybe? Is that kind of like the healthy range that you're looking for or hoping for?
Adam Shriver (24:56)
Yeah, that that that's a great question. And I would say if if if an agency's around that level, that's probably not a a point where we're raising, you know, a a red flag, right? if if we see it dipping significantly below that, then it's worth asking the question and finding out why that's the case.
And there are a lot of agencies that do operate at at lower margins and do so successfully. You know, Medicaid and other contract payer sources that have lower reimbursement rates, those typically come with lower margins. But if you're able to do them at a very high volume and develop efficient, repeatable processes around serving those clients.
you can do so at a a very large scale. so if if you if you have a strong Medicaid presence in your state, you might have a really stable pipeline of clients and a very recurring book of business. You might have less that you're spending on you know sales and marketing efforts if you kind of have this existing book of business.
and and so you could operate at, you know, call it 10% and be very successful. so I think when we talk about benchmarks, at the end of the day, they are just that, they're they're benchmarks. every agency is gonna land a little bit differently. And it's it's important to just kind of understand why and make sure that's consistent with your strategy and vision for for the business.
Miriam Allred (26:49)
Yeah, absolutely. Let's talk a little bit more about this growth path of opening the new office. I think there's there's a handful of big questions that a lot of agencies would ask. And I want to ask you a couple of those. One being, you know, how much cash should they have on hand or available to open a new office? Like there are direct costs with opening a new office. And, you know, they need to be prepared for what that looks like. And again, some of these numbers they're all kind of like, you know, subject to location and market and all the all the factors, but just like,
generically speaking, what's your advice on how much cash they should have on hand going into starting a new office?
Adam Shriver (27:26)
that's a a key thing to figure out before before you dive in. and I I think it's it's an important question to know how much cash to have on hand. There are definitely gonna be the obvious startup costs. You're gonna have new rent expense that you're adding for for for the new office location. typically you're you're gonna have like a new branch director.
or or sales manager who who's leading that office and really kind of focus on building out those relationships in that market. That's a really key hire, by the way. the the the the quality and passion that they bring to like expanding that location is going to be a big factor in its success. And and you know that that's kind of outside a little bit, you know, the the financial realm. But
That person is is so important. and having a real go-getter there who's gonna take that initiative is is is critical. But they're gonna have a salary and that salary is gonna be paid out before, you know, you're gonna have to hire hire them and have them getting trained up for probably at least a few months before, you know, they're even out in the field drum drumming up business. and so.
I would say those are the obvious costs. And the less obvious costs are, you know, the the the time that it requires from your existing team. you know, that new branch director is gonna require training. they're gonna require, you know, even a very strong hire is gonna require some hand holding. That takes time and energy away from your team.
And that's a real opportunity cost that you're you're missing out when when you're building that new office because that time and effort, you know, at the end of the day is is is finite and could be could have been reinvested in, you know, other in your core business for your existing location. So
That is kind of the the the the high level framing. I would say. when you're starting a new office, kind of more concretely in terms of the amount of of cash you should have on hand, I I would say you're you're gonna wanna have at least call it six months of runway or a plan to be able to fund that for for that period of time, because it might take you that long to really get any clients.
And beyond that, you know, when I look at even a break-even point, I would say you're you're probably going to be losing money or it's not going to be profitable quite yet for at least a year from opening that new location. by the end of year two, we would hope that it would be at a point where it's it's starting to become profitable. So until that point.
You need a plan that, okay, I I want at least call it six months of cash on hand before I'm even opening this new location. Well, then what's my plan to basically fund those losses until it's self-sustaining? So over that next call it year of operations, what's my plan to fund that? And it could be if I have, you know, a profitable business already, I could.
subsidize some of those losses from my current location. that's one option. I always encourage agencies I work with to also have a a backup contingency plan, like a line of credit. just as like a a kind of a working capital sweep if if you know that payroll hits and you don't have that cash quite on hand, having a backup option,
To make sure that you can fund that small gap in between. I usually say the line of credit is is more of a a backup option if you can kind of fund through your existing profits. That tends to be the the lowest cost of of capital. but at you know, at least you'll want that first several months on hand to start with.
And then a real plan in place for what you do until it becomes self sus self sustaining.
Miriam Allred (32:15)
Yeah, fantastic, Adam. That was great. You hit on all the kind of like the sub points that I wanted to talk about. And I'll just reiterate a couple of those, especially the strain that you put on your existing team. I think that's the common thing that owners are grappling with of like, is my current team ready to support this additional growth? And oftentimes that's you know, an extended conversation that you need to have with that team because aga again, it's all about profitability and revenue and kind of like
feasibility, but really your current team bears a lot of the burden. And so you just have to make sure that they are on board with this and prepared for this. The other thing that I'm glad you brought up is that break even point. You know, I think a minute ago you cited kind of like what it looks like profitability wise going from kind of like zero to one, you know, that zero to eight hundred thousand.
You would hope and think that after agencies have gone through like zero to one, one to two is a little bit better. And so kind of like that six months to a year, you would hope that they could kind of break even and become profitable in that amount of time. Every agency is different, every market is different. There's so many factors, but I think that's a great benchmark or milestone is being able to break even in that six to 12 months. And I and I typically see that too. I also want to just caution, you know, I think some owners, they open up these new offices. And you brought this up a minute ago with the example of like a $10 million agency that had six offices.
Sometimes offices don't break even and aren't profitable, but you have clients out in these territories. And I guess what's your word of advice or caution of agencies that do open up new offices, but sometimes don't go well? And and because the business holistically is doing well, they can kind of like overlook offices that aren't doing super well, but don't maybe want to like pull them back. What's what's your experience or I guess word of advice for scenarios like that?
Adam Shriver (33:53)
Yeah, for sure. That that's so common too. When when we first start working with agencies, really that that idea that you know you have multiple locations and most owners will have kind of a gut feeling if a new location that they opened isn't going well. like they'll see it come through and lower clients, higher turnover. maybe they have
turnover at like their the key role for the branch director. that's usually kind of a attention point where we see some issues come up. It's like you had a great branch director that helped start the location for whatever reason they have another opportunity, they leave. And then all of a sudden you're like, wow, we I need as an owner to go in and figure out, backfill that role. And then in the meantime,
kind stitched together like processes. so we, you know, there's some tension points where where we see like that come to light. A lot of times though, yeah, owners will just have like a kind of a vague notion that like, hey, like I think this location's not doing well. It's not holding its reven, it's not getting as much revenue as I'd like, but don't really have a good understanding of why.
And then also or even a good understanding of like then the next level of is this losing money? Am I subsidizing it with my other location? And so that's, you know, usually just my starting point across the board is like, let's make sure you have the right foundation in place. And so that you can say confidently that, okay, this look location A is operating at 20%, but location B is at 5%.
Or it's at a loss. And then once we have that data and can say concretely, these are what the numbers are, then that's where we can really kind of dig into the the PL for that location. Figure out, okay, is there are there costs that we potentially need to to take out? Do you have duplicate subscriptions? Have you potentially overstepped in terms of the rent? Do you need to look for a different space?
Do you need to change your staffing levels? Is that second office overstaffed based on the the revenue that you thought you get that's hasn't maybe materialized yet? So looking at kind of all those areas in in the PL on the cost side is a place I would start. And then really the more challenging question is how do you develop and build and grow that sales pipeline?
Cause usually if you can get more clients, get more hours, you know, and and really grow the revenue, then all of a sudden like th those those costs are more manageable. It's really just if you're if your sales volume is dwindling, but you have all these fixed costs, then that's where your profitability can really just start to erode. And then you're you're funding a location that's not carrying its weight.
Miriam Allred (37:15)
Yeah. I know this sounds maybe like counterintuitive to the conversation about growth, but I have seen this firsthand. And there are larger agencies that listen to the show in that kind of like 10 to 30 million dollar range where they've kind of like bloated their organization and opened up a lot of offices. And I've seen quite a few of those like walk it back over the last couple of years of like, we opened up too many offices, our expenses are too high. And so they've closed a lot of those physical offices and kind of popped up more like satellite type offices or
done more with less and just like strategically placing those branch to those branch directors in different things. And so they've actually kind of like shrunk their office size. And I think this is a good thing for people that are growing and opening offices to consider of like, don't move faster than you should and really keep an eye on revenue and profitability and reevaluate every six to 12 months because there are there is the chance that it's good for a time, but like over a longer period of time.
It's not the best like business decision. And that happens. And I've seen that, you know, quite a bit firsthand. And so just like a word of caution as people are going into this. let's shift gears a little bit and talk about payer contracts because you mentioned, and and this is kind of obvious, like there's kind of the typical margins with private pay and the margins with Medicaid and VA and LTC are are quite a bit different. And so another good growth opportunity for a lot of agencies is.
you know, they're they're kind of strong in one payer source and a good way to grow is to bring on another payer source. And there's a lot of things to evaluate going into that. And I'd imagine there's like good overlap with like revenue and profitability, but what are some of the other things that owners need to evaluate when they're considering bringing in another payer source?
Adam Shriver (38:53)
Definitely. so I would probably say, most common situation I have is agencies who are have started with private pay, are primarily private pay, and are thinking about adding a contract payer source on top of that. they're looking at Medicaid, VA, maybe like a a triple A or other kind of
local source of funding. I I think, for the one of the first things I I start with is I I I think making sure that you have kind of a clear goal when when you're diversifying your your your payer mix. private pay has has strong margins, but it it can be subject to
Subject to kind of economic cycles. If if people's if the stock market is is down and people feel like their their wealth is a little constrained, then you know, for for your clients, they they might be thinking about, you know, having a family member, you know, step in and provide some of that care. So there's some volatility and risk with private pay. And I think when you look at adding another payer source, you know, you want to be intentional with.
how you're how you're kind of addressing and mitigating that that risk. and so, you know, a a VA contract or like a a VA relationship is a great place. You know, that that might have
Comparable margins. In some cases, I've seen VA margins even outpace private pay. but you have a little bit more stability with with that. And so that's that's a real benefit. if you have kind of a more steady referral source through the VA there, once you're a credential provider, that that's definitely benefit what where you have to be mindful of of of
Some risks are one, when you're dealing with a contract payer source like the VA, they can change the rate at at pretty much any time. on it at least on an annual basis. So you do have some kind of captivity. If if their rate changes, you're you then have to figure out organizationally what what to do with that. and then I think the other layer that adds a lot of complexity that owners don't always realize is.
The the VA, Medicaid, those sources, they work on a different like payment cycle. Private pay, you often collect money at the time of providing the service, or you have a fixed kind of billing cadence with with your clients. that in in Medicaid and in VA typically works a lot different. And your lag from
Starting service to actually getting paid is a lot longer, usually. You can be looking at 30 plus days from the time you provide the service to actually collecting cash from it. And that's assuming that you know you have a pretty clean billing process to begin with. the VA and Medicaid, you know, if if
You have issues with your claim submissions. If your electronic visit verification has issues, like they'll kick back claims, you'll have to resubmit and go through the the process again. And that can even further extend you know, how long it takes to actually collect that cash. So it can be 60 plus days, much longer that.
that agencies are trying to just collect money for work that they've already done. so I think going in like with your kind of eyes open around like, okay, like it's gonna maybe take me longer to to get paid. there's an administrative complexity component that I'm know I'm gonna have to deal with. I've got to develop like a new kind of billing process for this.
Kind of going in with your your eyes open around that and that risk is is kind of important up front. And that's too where, you know, having an outside sounding board who can help you with developing your billing process, help you figure out kind of like the administrative pieces so that you can actually administer, you know, and serve that new kind of payer.
and get paid in a timely manner, like that can be like a real benefit as well.
Miriam Allred (44:04)
Okay. I'm gonna ask you maybe an impossible question, but I want to hear you at least like think through this in real time, which is every agency in the industry kind of asks, like, what is the optimal payer mix? You know, that's kind of like the million dollar question of like the healthiest, most sustainable, best home care agency. Like, what is the the optimal payer mix? And I'm just curious how you think about that. You gave the scenario of like,
Typically in your experience, it's like a a a healthy, strong private pay business and they have, you know, the bandwidth or the opportunity to take on these contracts. I'm just curious, is it kind of like a 70 30? Is it a 70-2010? Like if you had to try and kind of categorize what optimal maybe looks like, how how would you think about it?
Adam Shriver (44:52)
Yeah, it's it's it's a great question. And it is a challenging one because every state's gonna be a little bit different because a lot of the the things we're talking about here, like Medicaid is administered at the state level. So it's gonna be different. I'll maybe start with what I think are probably not healthy mixes. I think a hundred percent private pay is
I wouldn't call that unhealthy, but I I think there's there's some risk to it. Diversifying your payer source can provide some stability for the organization. what I would avoid doing is if you are looking at bringing on Medicaid or VA, if you're gonna do it, don't do it a little bit. You're gonna want to lean into it. So you don't want to have 95% private pay and five percent.
Medicaid or five percent VA, because that five percent of Medicaid or VA is gonna take way more than five percent of your time and it's gonna create so many headaches for you. so I would I would recommend against dabbling in additional payer sources. and if you're gonna do it, at least do it to a point where you're at like, you know, call it at least that 20, 30 percent.
So that you you have a real you're you're getting the benefit from it. I think on the VA side, that 20, 30% might make a lot of sense. on the Medicaid side, you want to look a little more closely at the economics, because I think Medicaid as a whole, as a as a payer source, is very much a volume play. because they're the reimbursement rates are, you know.
They vary by state, but in general, they're going to be much lower than private pay. To be able to do it well, you have to really lean in and get that volume so that you can really cover kind of the administrative burden and overhead that comes with comes with it. so for for Medicaid, that might even be call it higher than than that 20 to 30 percent that it might look like for for VA.
and you know, I I talked about like kind of it's it's harder administratively. I talked about like the billing process, but also just like staffing and running the organization because the reimbursement rates are so different for Medicaid versus private pay, like you have to think about like how you're gonna staff each of those two types of the business. and it really just adds a lot of complexity on.
like the staffing, caregiver, recruitment and retention piece. so you really have to think about those aspects too. So I think for Medicaid, probably you you'd wanna even push higher if that's gonna be part of your your strategy.
Miriam Allred (48:04)
Yeah, really, really well said. I
I agree with that. And it's it's kind of like conceptually, I guess the way I think about it personally and and what I've seen is like do one thing extremely well. And then when you get to that point to reevaluate, like you said, you have to like lean in and go all in on another payer source to get it to at least that twenty percent, typically, you know, thirty percent for it to be worth it.
Because especially if you especially if we're talking about VA and Medicaid, because of just like the time intensive extra work that it takes for the team, like you really have to get it to that 20 to 30 percent for it to be worth it. And so I kind of think about it as like most agencies, they're either, you know, kind of like 70, 80 percent. Well, they do private pay really well or they do Medicaid really well. And then they kind of like layer in the others. But I always kind of think that like rule of thumb is like at least 70 30 of like your primary.
source and then kind of like your secondary, but you've got to get that secondary up to at least twenty to thirty percent for it to be worth it. And and I do see, you know, I I think in terms of the 70-30, but I do see businesses where it's kind of like 40, 60 or 50-50 of two strong, strong sources. But most importantly, it's like do one thing really well, bring in another thing, but lean in and work at it. Granted, kind of like opening the new offices, like if it's not going well, like you can walk it back and you can unravel these types of things. But
you have to really do the due diligence and get it to a place to where it is profitable and it makes sense. And usually that's kind of like 20 to 30% of your business. so so well said. And this is kind of like conceptual numbers, but I think this is good for people to understand because I do see a lot of businesses that only have 5% or even 10% of Medicaid or VA. And I just think like you're operating at a loss in those payer mixes and your team is burning out and it's a distraction. Honestly, like 5%
Of an additional contract to me is likely a distraction.
Adam Shriver (50:00)
Yeah, I I completely agree. and I would I would tie this in as well with, you know, we we talked about with like on the location side, a lot of agencies when they come to us, they don't know like which locations are profitable. I see the same thing with payer payers as well. They struggle with kind of those fundamental questions of which payer is actually.
profitable. and so that's one of the things that, you know, we we look at first is like before we even kind of think about adjustments to the payer mix or like where you'd want to it expand or kind of contract, we we the first question is we have to figure out just like what's what's the profitability of each of your payers. you know when when when we start, you know, Medicaid might
show, call it a 10% margin, but then after we factor in all of the administrative complexity and costs, that that could end up being at a loss. And so that doesn't mean that you need to, you should pull out of the Medicaid business. It just might mean that, okay, to be able to make Medicaid more actually profitable, you might actually have to lean in harder to it.
to to be able to to get to the volume that actually makes it worth your time. and so I think having that data and starting with like the numbers of like this is what my profitability is for each payer, like once you know that, then you can make a much more informed decision around like what do I want my my payer mix to look like.
Miriam Allred (51:50)
Mm-hmm. Take your home care hat off for a second and think back to like your PWC experience. You know, you talked about doing a lot of like MA activity and like business evaluation and things. I want to hear what home care can learn from kind of like your outsider experience around diversification. Like you evaluated a lot of businesses in a lot of different industries. We talk quite a bit about diversification in home care from like a payer mix standpoint. Granted, every other industry has a different looking like version of diversification, but from your outside experience, what
like kind of wisdom or advice can you impart to home care about diversification in general when it comes to kind of like that MA landscape?
Adam Shriver (52:28)
Definitely. Yeah, I think that, diversifying your payer mix there, you know, we've we've really highlighted some of the pros and cons to the business all already. the pro being, you're you're reducing dependency on a single source. if you're primarily private pay, moving into contract can provide a little bit more of a stable pipeline.
of business. And so, you know, if your economic conditions are bad, your private pay might be down, but your Medicaid might be stable or up. So that diversification comes through and has those, you know, very good benefits. The cons that we talked about, like the administrative complexity, the additional kind of overhead and cost that goes into administering and staffing and managing.
the different pair mixes, that's a a a con as as well. not necessarily a con, but it just it's a cost you need to factor into the the the calculation when you're looking at the ROI of it. from a a merger and acquisition standpoint, and I and I I think I would analogize this to a a lot of agency owners are
May not be thinking about selling their business tomorrow, but they want to have a plan for five, 10 years down the line and starting to build an agency now and having that profile be like, you know, very ready to to market when when you are ready to hit that point to to entertain, like selling your business. I think.
couple things having the diversi diversification is is is definitely like a a a a a benefit to your your financial profile and overall stability of the organization. I do think it's worth like thinking about. Like if you're if you put yourself in the shoes of a potential buyer, the buyer might really want
the private pay port of part of your business or the Medicaid part of your business and might not necessarily want or be able to understand the whole thing. so
I I would say putting yourself in the shoes of the buyer and like the profile that they're looking at. And likewise, if we're talking about like multiple offices, like let's say you're operating in one state, if you open an office in another state, a potential buyer, you're starting to like make it more of a niche buyer that's gonna want both of those states and is gonna want, you know, if you've got like multiple payer mixes,
And so the buyer will think through all of this when they're evaluating like the risk of their organization and what they're willing to pay. and so I I don't caution that as against it. I I think if if you're if these decisions are improving the overall financial health and stability of the business, that's positive. And then, like, really, when you're thinking about selling your business, you have to think about like, okay, like, how am I gonna going to to
to market this to to potential buyers to help them understand why I set it up this way is a good thing and help translate that into them of like, hey, this is this is gonna create more growth, opportunities, and upside in the future because of the way that we've positioned it today. and so really translating that. And I know you've had on other other guests as well, like Corey Mertz, who who's
helps agencies with this all the time. at from kind of a sell side banking advisor standpoint. you know, that those are got kind of great people. And having kind of in your network people as a sounding board to like as you're thinking about those decisions, to, to, to reach out and and kind of understand and kind of
Test the waters of like what that potential market is gonna look like for your business.
Miriam Allred (56:59)
Yeah, that last part was really
well said around can you kind of like validate and tell the story as to why you've grown a certain way to the seller at the right time? You know, it's like there's no one right way, but can you illustrate to them why you've grown the way that you have and validate what you've done to them? And then obviously they get to evaluate like if it's a right fit for them or not. So yeah, well said. That's also kind of like a challenging question. And there's so many factors, but I agree, like everyone's should be thinking about, you know, what
profile of business they want to build and are they building something valuable to someone at some point and and what does that path look like? one more, one more kind of question to wrap up here. this is a little bit out of your wheelhouse. You you're a CFO and not like a therapist, but I think a lot of owners listening to this, like they're at this, they're at this crossroads and they know that they can do this. And and granted, everything we've talked about today is like the evaluation of like how do you know if you're ready
And which route you should take. But there's always going to be this like inherent fear. You know, home care is really hard. These owners are burnt out. They've worked extremely hard to get the business to where it is. And so to take this next big risk psychologically is really difficult. And so I guess I want to ask you: you have to have that conversation with them of like, you do the evaluation, but I think there's still gonna be like that inherent fear and caution and, risk aversion for a lot of these owners. How do you help them overcome?
that and ultimately like make this big decision.
Adam Shriver (58:28)
Yeah. So so well said. that when when we start talking about money and finances, it it's it's it's very personal to to the owners. And so it a lot of times my thought is that when we work when I work with owners, by mapping out the the financial plan, here's what the costs are gonna be, here's
the contingency plan. If things go wrong, this is what our backup is going to be. Having all of that kind of pre-planned rather than, you know, starting, you know, starting a new office and then it doesn't quite go as expected. And then you have to kind of wind back and kind of scramble to figure out what you're going to do. You know, planning up front and having those decisions, having those numbers just mapped out on paper really helps make
the the decision a lot easier. and it, you know, takes out some of the the subjectivity when you have those numbers. and when you've kind of looked at like, okay, this is a contingency plan. This is my backup. When you know that, it kind of it's that safety net and you don't have to, you know, worry about the the the worst case as much because if if things are don't go as planned, you you know what you're going to do.
and so really just kind of putting the numbers to it, making it objective, and then having contingency plans really in my experience working with owners alleviates a lot of that that fear.
Miriam Allred (1:00:08)
Yeah, yeah,
really well said. And that's why everyone in this instance should should have a conversation with you. Because I do hear from a lot of owners where it's just kind of this like this gut instinct, like, I'm to this point. Like, I should be growing. I should make this next big growth move. But it's all kind of like gut instinct and just like the the high level, like ambiguous numbers are telling them that they can. But I I completely agree. It's like there are concrete numbers that you should know and have.
confidence in going into making these decisions. It shouldn't just be kind of like on a whim or a gut, a gut instinct. So Adam, this has been fantastic. You've only been in home care six months, but I feel like you have articulated so well today. And I think you're going to be a dynamo going forward in this industry of just like understanding the financials, being able to articulate a lot of these points really well. And just as you get more experience under your belt, like, you know, home care is really unique and a lot of these different markets and agencies are structured different ways. And so you and I both, as we just like
experience more through these owners. We just learn a lot and there's a lot of value and just the experience that you'll get by working with different agencies. And so thank you for coming so prepared. My last, last question, what is the best way for people to maybe book some one-on-one time with you if they feel like they would get, something out of that or at or kind of like this fork in the road where they could benefit from a conversation for you. What's what's the best way for them to do that?
Adam Shriver (1:01:27)
Yeah, absolutely. We would, you know, love to connect with any agencies who are struggling with their finances or even have, these questions about their their finances and and aren't, know, maybe sure what their numbers are. we're happy to have a conversation with them. our website, the home care CPAs, they can find us there and book a discovery call. there it's it's
a a a free kind of session to to kind of just get a a sense check on where your organization's at and just see if we can even if if we're the right fit to help you or or if there's another resource we'd recommend. But you know booking a discovery call it would be a great place to start. And then the other place I would point agency owners to is we've cultivated a community called margin matters.
it's an online kind of community of agency owners where we talk about all things finance related. and it's it's a great place both for smaller owners who are maybe getting just getting started to more kind of establish agencies. I do like one on one sessions there. There's an ask Adam
section so you can submit questions and I'll answer them. it's it's a free resource to join through the end of 2026. So I'd encourage people to sign up and get get started and start interacting with the community. And I'd be happy to answer any any of your questions there. And then you can also interact and coordinate with with with the rest of the community.
Miriam Allred (1:03:13)
Awesome. Awesome. Yeah. As always, we'll have the website and then also a link to this community in the show notes as well as your LinkedIn and maybe your email so people can reach out and ask questions. I I highly encourage, you know, a lot of agencies that you work with are going from like zero to one, but really that like one to two, two to three, like that's where agencies need the strategic support and the sounding board and the additional help and making these big decisions. So if you're at that place, I highly recommend a conversation with Adam or Dana and the team. So Adam, we'll wrap your thank you so much. Great job today.
Adam Shriver (1:03:43)
Thanks so much, Miriam. It's a pleasure.