Top Strategy for a Successful Residential Assisted Living Launch
Nov 28, 2024
Starting an assisted living facility is super exciting, but it can also be tricky, especially if it's your first time. There's a lot to think about—hiring staff, getting licenses, and making sure you have enough money to cover all the costs. But here’s a little secret that can help you get off to a great start: Ask for extra operating capital.
This one simple strategy can make a HUGE difference. Why? It gives you a financial cushion to cover early costs before your facility starts making money. In this blog, we’ll explore why asking for extra operating capital is so important and how it can help your assisted living business succeed!
Check out the video, too:
The Thrill of Starting an Assisted Living Facility
Imagine buying your first assisted living facility. You sign the paperwork and celebrate this big step—woohoo! You’re ready to change lives and make a difference. But then, reality hits when you have to pay for that first payroll.
Hiring staff, buying groceries, paying for insurance—it all adds up fast! And the worst part? You might not make any money right away. The costs start piling up before you get your first resident or approval from Medicaid. That’s when things can get a little stressful.
The Solution: Extra Operating Capital
Here's the best advice I can give you: Ask for extra operating capital when you’re getting a loan. This extra money is like a safety net. It covers the costs of running your facility in those early months, so you don’t have to worry while waiting for your income to start rolling in.
For example, when I bought my second facility, I asked the bank for more operating capital—around $30,000. That money covered about a month and a half of costs, like payroll, food, and insurance. It was a lifesaver!
The best part? Banks usually say yes to this request if it’s in your business plan. Lenders want you to succeed, so showing that you’ve thought ahead and understand the costs helps them feel confident about lending you more money.
How to Ask for Extra Operating Capital
Okay, now you might be wondering, "How do I actually ask for extra operating capital?" Don’t worry, it’s easier than you think. Here’s a step-by-step guide to help you out:
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Calculate Your Monthly Costs: Use an underwriting calculator to figure out how much it will cost to run your facility each month. Let’s say your monthly expenses are $20,000.
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Ask for 1.5 to 3 Months of Extra Capital: When you apply for your loan, ask for enough to cover 1.5 to 3 months of costs. If your monthly expenses are $20,000, you’d ask for an extra $30,000 to $60,000.
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Explain Why It’s Important: Include this in your business plan. Highlight why you need the extra money, like for payroll, licensing, and startup costs.
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Talk to Your Lender: Discuss your request with your bank. I got the extra capital because I had it well-documented in my business plan, and my lender understood the importance.
Why Extra Operating Capital Matters
If you don’t have enough money when you start, running an assisted living facility can be really stressful. You might struggle to pay your bills, cover staff salaries, or buy supplies. Extra operating capital gives you breathing room—it helps you focus on managing your facility and giving great care without constantly worrying about money.
And don’t worry about it adding too much to your loan payments. If you borrow an extra $40,000 to $60,000 on a $1 million loan over 25 years, the monthly payment won’t go up much. But the peace of mind and financial stability it gives you? That’s priceless.
Your Path to Success
So, what’s the bottom line? If you want to start an assisted living facility successfully, plan for extra operating capital. This one step can reduce your stress and make your startup phase much smoother.
Before you talk to a bank, download our Business Plan Checklist.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:01
in today's video I'm going to give you five major business expenses that you need to be aware of if you are starting a residential assisted living facility make sure you stick around if you want to learn what those five major bu hey everybody it's Brandon Gustafson welcome back to Assisted Living investing happy to have you on the Channel with me today uh in today's video we're going to get into five major business expenses that you need to be aware of as you kind of start the process of getting into your assisted
00:00:33
living facility if you want to see what these uh expenses look like on a calculator make sure you get over to Assisted Living investing. net I'll link that down below in the uh bio of the video so that you can go over there but I've got a free underwriting calculator you can go and download and um on there I've got a a tab that is expenses and I've used what I've done with that is um the buildings that I've purchased and also other ones that I've looked at kind of compiled them into a nice expense
00:01:02
list and giving you a pretty good feel for what those expenses might look like uh for your facility so percentage wise you can kind of start getting a feel for what those look like so if you're interested in learning about that or following along as I go through the process here um on this video then get over to the website make sure you download the calculator when you do you're going to get a few other emails um around kind of a a work plan that I have developed a 12we plan with tips and
00:01:29
tricks and actually items to get you started on your journey uh while you're waiting for me to get that course out to you which I'm working on a lot right now U we'll get that out to you here pretty quick and I'll make sure it's affordable so that it kind of get you through the process so you can really uh get a good Head Start in starting your own assisted living facility by that said let's get into the video topic of today the five major expenses that you need to be aware
00:01:56
of as you're starting an assisted living facility number one is St staing I think you know this if you watched any of my videos anybody else's videos or just thought about this in general you know that Staffing is going to be a huge expense for you as you get started with your assisted living facility costs a lot of money to pay people so that they can have a living wage uh with our expenses I was just looking at it before I recorded this video in 2022 so our last calendar year uh our wages were about 40% of our total
00:02:28
expenses uh over the course of of the year on average about 40% it's a huge chunk of money that you are paying to these people so you need to be aware of it you have to pay people competitive wages so that you keep them and don't have turnover um there's going to be some taxes involved with that there's going to be workers comp insurance um if you're doing benefits just the whole wages portion of it I think you need to plan on your expenses um in that section being between 35 and 50% honestly is is
00:02:59
where you need that to land big expense but you need to know that going into it and if you're starting an assisted living facility I hope you've given that some thought that you're going to be doing that there are some ways for you to get around it if you're the one that's working in the facility obviously it's like a business expense um for it but then you're not paying yourself um out of the business The Profit like there's there's ways to kind of get around that so um you know as you
00:03:23
get into it that there's ways for you to kind of look at that and get more familiar with the expenses but I would plan on 35 to 50% of your total um operating budget being related to Staffing the second big one that I'll say is Debt Service so this is uh you've got a loan and you're working with the bank uh to do this or you're working you've you know developed some kind of a thing that's seller financing uh with uh the previous owner and uh so you're trying to to make those payments it's
00:03:55
another huge chunk for us it's I would say about 10% something that you want to be aware of if you do an SBA loan is um it's not a fixed rate um it is adjustable and it adjusts based off of the prime rate which um is tied to what the FED is doing with rates so right now it's going up which is kind of a pain for us so something you want to be aware of but our payments have gone up quite a bit um over the past year and a half or so um since the FED has started playing with rates and it's having a a pretty
00:04:28
significant impact on on our operating budget so right now um it's PR probably a little bit higher as when I looked at our 2022 numbers it was about 10% of our operating budget was for Debt Service I'd say it's probably 12 133% now actually uh so something you just kind of want to be aware of it's a big payment that you've got to make and you have to make it every single time um or you know the bank's going to come take the house from you so you have to make that payment it's it's extremely
00:04:55
important uh for you to have that in place the third major expense that going to talk to you about is Insurance there's a lot of different insurance that you got to get you've got to have property insurance you have to have liability insurance workers comp insurance um there might be other insurances that you have to have in place that is required by the the lender or by the state health agency you need to make sure that you have these different types of insurances in place so I highly suggest getting with an
00:05:21
insurance broker they're going to f help you find the best pricing for insurance and make sure that you have exact the exact coverage that you need and they'll kind of walk you through through the process if you have a claim um so Insurance break Brokers are excellent they don't cost you anything up front they get paid a cut uh from the insurance when you pay the premiums so um not a big deal there but I would say our insurance is probably close to that 10% again maybe even slightly higher
00:05:48
it's going to depend on depend on your specific situation uh the type of insurance that you can get um I would say in the beginning you're probably going to have higher rates just because you don't have the the track record and the history uh showing what you can do with a facility but as you operate and then you show that you are good your insurance premiums will likely come down but insurance huge expense that you need to be aware of expense number four is groceries so you got to feed your
00:06:15
residents you got to make sure you're there in our 16 bed facilities our grocery budget is uh probably about 9 10% so a little bit less than 10% is typically what we're seeing there from a grocery perspective but it's it's huge it's a it's a big big expense for you to to be able to go in and um you know pay your or feed your people um to buy all the food and make sure you're Pantry stocked and uh make sure you're complying with the rules each State's going to have a different rule as to how
00:06:44
much food needs to be on hand uh and for how long it could be two weeks it could be four weeks but you're going to have to especially in the beginning build up that um Pantry of of food so that it's available for your residents and the fifth major expense that you need to be aware of is is your utilities so you got to pay for water power um gas and those types of things um you can do this on like a balanced budget if you've been there for about a year that can they can look at that and and see what it's going
00:07:12
to look like or you can just pay it automatically and then there's some seasonality um with it but in general I would say our uh budget for utilities is between five and 7% of of our total budget so kind of gives you an idea of what it costs for you to operate um your your facility from that standpoint from your utilities you got to make sure that you have those things in place you're paying those bills so they don't turn off the water um so you have gas so you have hot water um so you have
00:07:40
electricity and can watch TV um those types of things you need to make sure that you have that all in place um so I'm going to do some quick math here let's see yeah so that is if I added that all up correctly um those five major expenses account for about 75% of our total operating budget um there are a bunch of other things that go into that I was just looking at our our profit and loss statement um to see what our expenses were for 2022 and we had I don't know 20 budget categories so those
00:08:10
five are 25% of all the budget categories but they make up 75% of the operational budget um so things you want to kind of take into consideration what it's going to look like and exactly what those are and and you can extrapolate that if you if you want to look at that and and see what they might be for you and your specific circumstance you have an idea of a facility that you want to buy make sure you get over to Assisted Living investing and uh Assisted Living investing. net and download that on
00:08:39
writing calculator it's free uh it gives you a lot of good information you can fill it in um start adjusting your thing your your numbers and make sure that kind of the guidelines I've given you here are kind of in line with what your operating budget is and what you would expect from that and that will give you a really good overview of what it's going to cost you to operate your facility um you know however many beds you have in your cir your specific circumstance but this is going to give
00:09:05
you an idea of what that's going to cost and um where those big buckets are so make sure you get over there and download that underwriting calculator are you interested in learning more about residential assisted living but you don't know how to get started at Assisted Living investing. net we're here to help you through the process start to finish thanks for watching have a great day
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