Despite its many negatives, the global recession induced by the COVID-19 virus could set the stage for home care franchise systems to see a period of strong growth.
In addition to being a public health emergency, COVID-19 is having a far-ranging economic impact. As states began implementing shelter-in-place orders, asking residents to stay home and avoid in-person gatherings to curb the spread of the virus, there has been a reduction in general business activity and a spike in unemployment.
Overall, 20% of people in the U.S. have either lost a job or seen it happen to someone in their household, according to data from the Pew Research Center. Additionally, 27% of individuals say a member of their household has experienced reduced wages or received fewer work hours.
Meanwhile, the last full week of March saw 6.6 million initial unemployment insurance claims — a record high, according to statistics from the U.S. Department of Labor (DOL). In total, tens of millions of Americans have filed for unemployment over the past few months.
Amid the recession and job uncertainty, there is still a lot of interest among investors and entrepreneurs in joining a franchise system. This correlates with what was seen during the 2008 recession, Suzanne Beall, vice president of government relations at the International Franchise Association (IFA), told Home Health Care News.
“Just like 2008, there’s actually a huge market for franchising and buying new franchises” Beall said. “The real challenge is access to capital. If you don’t have cash on hand, there are a couple of ways we see people entering franchising.”
Those avenues, for example, include the use of retirement funds or Small Business Administration (SBA) loans.
Washington, D.C.-based IFA is a nonprofit membership organization for franchisers, franchisees and franchise suppliers.
Broadly, the franchise model is a promising prospect for buyers looking to avoid some of the pitfalls of building an entirely new business from the ground up. Home care, in particular, also has the appeal of long-term tailwinds and a service-oriented model.
“There’s something attractive about franchising in that you don’t have to come up with your own concept,” Beall said. “You’re buying into a brand and community. You have all of that community support to get your business up and running.”
Another major benefit for buyers looking to purchase and operate a franchise location is that being part of a larger network creates accountability, according to Beall.
“The whole network is only as successful as the next franchisee,” she said. “It takes very strong franchisees and franchisers for everything to work properly. Franchisees want to make sure that the franchise down the road from them is also successful because of brand standards.”
Home care has gained a reputation for being what some refer to as “recession-proof,” as the U.S.’s rapidly aging population means demand for care will only continue to grow in years to come.
One home-based care franchise company, Best Life Brands, recently hit a record high in new franchise agreements. This April, the Bloomfield Hills, Michigan-based company saw a 200% increase in new franchise agreements compared to April 2019.
Best Life Brands is a holding company that owns the franchised home care providers ComForCare and At Your Side.
At the beginning of 2020, the company had 400 locations. It has added roughly 25 new locations since then.
While there is a wide range in the types of people who are interested in buying into a home care franchise system, most have one thing in common, J.J. Sorrenti, CEO of Best Life Brands, told HHCN.
“Our franchisees range from the 30-year-olds looking for a second step in their career, all the way to people who have been in business for 25 years and are looking to be in business for themselves after working for corporate America,” said Sorrenti, who took over as CEO in April. “The common thread across the network is that most are mission-oriented. They want to help others, which is perfect for this industry.”
For a potential investor or franchisee, the initial franchising fee for a ComForCare location would be $49,000. This doesn’t include the funds needed for licensing, training and other costs, according to Sorrenti.
“We work really hard to get folks from the point where they sign that franchise agreement to the point where they’re open,” he said. “In some states, there are licensing requirements that take a little longer. Generally speaking, in less than six months, the franchisee can be open and providing care in the home.”
Similarly, Always Best Care has seen an uptick in prospective franchisees, along with an overall higher quality of candidates, President and CEO Jake Brown told HHCN.
“We started off the year with no franchises sold in January and February,” Brown said. “All of a sudden, we started selling in March and April. We have a fair amount of high-quality candidates in the pipeline, so we think it may uptick even faster.”
The pool of quality franchisee candidates may be the result of the negative impact COVID-19 has had on other industries, such as the food and hospitality sectors.
“If you’re a fast-food franchise, restaurants aren’t operating,” Brown said. “This could give the senior care industry a better opportunity to access quality leads.”
Always Best Care is one of the largest home care franchise companies in the country. The company currently operates across 209 territories in 30 states.
While the costs of opening an Always Best Care franchise location vary by state due to licensing and accreditation requirements, it typically costs about $75,000 to $120,000. This includes the franchise fee and working capital, according to Brown.
“Depending on the state, if it’s a no-licensure state or low-barrier-to-licensure state, we can usually get the franchise up and running in a pretty quick timeframe,” he said. “Usually, within 90 days or so.”
After a year of business, the return on investment can be as high as $1 million in annual revenue for one or multiple locations. This, of course, is at the company’s strongest performing franchises.
Looking ahead, Sorrenti expects that the bump in new franchises will continue through the COVID-19 public health emergency.
“I would expect that most of 2020 will consist of people trying to figure out what’s next,” he said. “As the recovery starts to happen, it will be unfortunate, but some businesses may not hire back all of the people that were there before. People will be left looking for something else to do.”