Earning Potential for Assisted Living Operators: Key Insights You Need
Oct 01, 2024
Today, we'll look at an important topic for future assisted living facility (ALF) owners: How much does an assisted living operator make? Understanding an ALF operator's financial possibilities and revenues is important for anyone considering entering this business. It's not just about passion and exceptional care; it's also about making your company financially feasible and sustainable.
This blog will discuss several aspects that affect an operator's income. Key variables, like location and facility size, services offered, and operational efficiency, influence how much income you may create and your profit margins. We will break out the costs, revenue streams, and common financial difficulties to give you a clear picture of what to expect.
Join us as we dive into the details of ALF operator profits, offering insights to help you plan a successful and effective career in assisted living. Let’s examine the financial landscape of operating an ALF and how you can maximize earnings while delivering excellent care.
Check out the video too:
Factors Affecting Operator Income
Geographic Location
Your facility's location has a substantial impact on operator wages. You should expect to pay extra in locations with a high cost of living. It is critical to conduct research into local market pricing. To learn about local pay scales, search for "assisted living operator salary in [your city, state]."
Ownership and Operational Scope
Your company's structure—whether you're an owner-operator or have hired an operator—impacts earnings. Owner-operators who own and manage their properties frequently have distinct revenue patterns than hired operators managing several facilities.
Experience and Portfolio Size
The operator's experience level and the size of the facility portfolio also play a role. Experienced operators managing larger portfolios typically command higher salaries.
Industry Standards
For larger portfolios, a common benchmark is to pay operators around 5% of the gross income. This percentage can guide your financial planning and underwriting processes.
Paying Yourself as an Owner-Operator
As an owner-operator, you have several options for compensating yourself:
Salary
One simple option is to put yourself on a salary. Ensure the wage is acceptable for your job and enter it into your payroll system. This strategy generates regular, dependable income.
Guaranteed Payments
Guaranteed payments are still another option. These are predetermined payments paid out regularly, comparable to a salary, but only to owners. This option has tax ramifications, so contact your CPA to establish which is best for your circumstances.
Profit Sharing
Profit sharing is calculated using the facility's profits and is often distributed quarterly or semi-annually. This technique ties your salary to the facility's financial success. Profit-sharing rates should be mutually agreed upon and fully documented.
Practical Advice and Resources
Be Prudent with Payments
As exciting as it is to see rewards on your investment, proceed with caution and patience. It may take several months to realize considerable revenue. Initially, you may even need to reinvest profits back into the company.
Regular Review and Adjustment
Evaluate your finances regularly to see if any payments need to be adjusted. This ensures that pay reflects the facility's performance and financial health.
Transparency with Partners
If you have company partners, be clear and transparent about earnings and incentive programs. Ensure that all partners agree to the conditions and understand the financial distributions.
Recommended Reading
A highly recommended resource is Profit First by Mike Michalowicz. This book offers valuable insights into managing business finances and ensuring profitability. You can learn more about it through YouTube videos, podcasts, or purchasing the book online.
Ready to take the next step in your assisted living journey? Download our Business Plan Checklist to ensure you have all the elements needed for a successful business plan. This tool will help you outline your business strategy, identify key goals, and prepare for a profitable venture.
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Show full transcript 👇
Transcript
00:00:01
[Music] hi everybody i'm brandon gustafson i own and operate two assisted living facilities and i created this channel to help people like you learn the ins and outs of investing in assisted living welcome to assisted living investing in our last video we talked about how much should you pay your assisted living facility administrator and today we're going to get into how much does an assisted living operator make how much can you expect to make as an owner operator what's that process like
00:00:43
what could you expect to do in that type of situation so just like we talked about in our last video around how much an administrator makes it it depends it really does depend some of the factors that are going to determine the payments that are made to an operator are going to be things like the geographic location of the facility is there an uh you know is it an owner operator type of a situation uh do you have a large portfolio and you're the operator and your operator is not an owner and is
00:01:12
operating multiple facilities um what's the past experience like of the operator you can use many of the same resources that i outline in my last video to kind of determine some of that you would just kind of change your search term to something like assisted living operator salary in my city and state and and see what you can kind of come up with as you're looking for that type of a of a salary unfortunately there's again just not a cut and dry number there to to give you i will say though
00:01:42
in larger kind of portfolios uh especially you know something where you've got somebody working on a larger type of a facility i've seen five percent of gross income is kind of a good standard fee to go off of so if you're looking at this for underwriting purposes five percent is probably a good thing to go at if you're an owner operator though um we're gonna get into that uh here in just a second it's gonna look quite a bit different from that uh so just kind of wanna make
00:02:06
sure i i point that out that those are some really good baselines there for hiring an operator i'm going with five percent i'm having a b kind of that number is is kind of a good market that you could probably expect to to pay for that now that said i know you're probably the person that's going to be the owner operator right that's that's probably why you're here on this channel that's what you're looking for so if you're the owner operator uh similar to how i
00:02:30
operate my facilities you know i i own my facilities i operate them i'm out of state i'm kind of working with them um if you're going to be like me even if you're not out of state and you're you're there but you're interacting and you are the operator quote unquote um that's you're like me and so i'm going to share kind of how we do things for ourselves there's a there's a couple options for how you can pay yourself and i'll qualify this by just
00:02:54
kind of giving you i'll qualify all of this advice just by saying that i'm not an accountant i'm not a professional you should probably talk to your cpa for your specific situation to make sure you're doing something that makes sense for you from a tax perspective uh from a salary perspective that you're not putting yourself in a difficult position so qualify all of this advice by saying talk to a professional about the way that you're going to do this with that said i'll jump into a few
00:03:19
options so number one would be salary putting yourself on a salary you can uh you know if you're making enough money with your portfolio or with your facility you could put yourself on a salary and like actually run this through your payroll um as and your title would be operator of the facility or the facilities um is is kind of what you do that so you'd want to make your salary you know a reasonably marketable rate for the amount of work that you're doing do some research on that to figure out
00:03:47
exactly what that's going to look like for you the next way that you can pay yourself is is more of kind of an ownership play and it would be what you would call like a guaranteed payment for for an owner but you can kind of take that as as your operating salary uh for lack of a better term but there are different tax advantages to the ways that you're you're structuring these payments um so an owner guarantee payment so guarantee payments like i mentioned they're kind of similar to
00:04:15
salary it's going to be a set amount you're going to get it on a irregular cadence whether it's monthly or quarterly or whatever but it's coming to you you know what to expect so in that sense it's somewhat similar to um to a salary so guarantee payments are set for all owners of the facility so that's where it is a little bit different from a salary for an operator so you would say yep our our number is a thousand dollars and that goes out to all the owners and that's a guarantee
00:04:43
payment that now goes out to all the owners so you want to kind of take that into consideration if you've got a partner in there that is you know more of an equity partner and that's their role and that's what they do and they don't do a lot of the operations you might consider that salary portion or you'd want to look into this a little bit more but they need to be distributed out to the ownership partners based on the amount of equity that they own in the business so as an example let's just assume your
00:05:11
facility is cash flowing a thousand dollars a month there's two owners they each have 50 ownership in the business that guarantee payment would be 500 a month that would go out to them let's say that you've got three owners in the business one of them owns fifty percent the other two own twenty five percent um that person that owns fifty percent is going to get five hundred dollars a month in this scenario the other two are going to get 250 a month so you just kind of split it out based off of the percentage that they
00:05:38
own in the business and these payments are revisited on a regular basis so you would put it into your your regular ownership meetings and say yeah let's review our financials are we performing better than we expected okay let's up our guarantee payment by 500 a month or whatever number you want it to be or no we need to cut back on our on our guarantee payments for this month or for this quarter and we're going to take those back and reduce them by 500 or make those adjustments and it's done at
00:06:08
kind of a board level and you're making those decisions for the type of payments that are coming out of the facilities but they are guaranteed payments um that come to you as an ownership group and the third one is profit sharing and it's it's somewhat similar to guarantee payments but it counts differently for tax purposes so again talk to a cpa kind of about your specific situation but it's going to be based on the amount of profit that the facility makes so your profit payments
00:06:38
are distributed on a regular basis usually it's like quarterly or semi-annually and then they are just adjusted based off of the amount of profit made by the facility um and typically that's going to be based off of a percentage rather than a set amount you know that thousand dollar example we just used um it's going to be more of a one percent profit and then that's distributed out based off of the equity owned um by the different people in the owner's ownership group a great resource for
00:07:06
this is actually the book profit first by mike michalowicz i'll put a link down in the bio so that you can go and find the book for yourself and read it it's just it's really really helpful you can find youtube videos um by by mike uh there's podcasts and things like that there he's just an incredible resource so i would encourage you to do that um if you do purchase the book um using the link down below i may get a small commission on the purchase so just want to make sure that you're aware of that um
00:07:32
but yeah i highly recommend the book it's great i actually have a funny enough i have a copy of it right here so here's this is profit first it sits on my desk all the time i i refer to it all the time i highly highly recommend profit first whether you're running your own business or that's assisted living or a separate business a great methodology for how you want to pay yourself the last thing i'll point out is to just be prudent and patient with your payment as an owner operator uh getting paid
00:08:03
back on your investment is exciting and it's likely one of the biggest reasons why you got into business right it's why you wanted to do this you you love uh working with people and things like that is rewarding but you're in this for the money for the assets and things like that um you know that's why you got into investing um and you just want to you'll be able to make money over time on your investment at some point but recognize that it just doesn't happen like that it might take you sometimes it
00:08:28
might take six months it might take 12 months it could take 24 months like it just depends make sure that you're wise with the amount of money that you're paying yourself there and don't put yourself in a really bad position we didn't pay our sales for the first several months we're actually putting money in to make sure we're making payroll and and not having issues um with that and it took continually evaluating the performance and we still are um to see if we're able to adjust
00:08:53
what those payments are going to look like we pay ourselves through a guarantee payment and then we'll do profit sharing as well and so that's kind of how we have structured our payment at some point in the future we might adjust that that's how we've done it for us and so you just kind of want to see what it looks like evaluate those numbers on a regular basis and make sure you're comfortable with the amount that you're paying yourself otherwise you're just gonna have to put that money back
00:09:15
in so you can make payroll or or whatever you need to do um so just kind of make sure you're you're okay with what's going on there and you know if you're partnering with other people you have to make sure that you and all of your partners are all on the same page with how much everybody is making and how those payments are going out how they're structured you just want to make sure that everybody's on the same page there's transparency you're over communicating again communication is key so make sure
00:09:38
you're doing those things next time we're going to be talking about how to be an effective assisted living operator so i'm going to go over that you know how do you do this as an owner operator is just a small facility what's that process like i'm going to kind of give you some tips and tricks that i've learned as i've gone through this process in the past to learn more about investing in assisted living make sure you visit me on assistedlivinginvesting.net i would love
00:10:01
to see you over there on the website i've got content i'm going to be setting up consulting calls uh an option for that as well i would love to have some conversations with you and help you work out things in your specific situation also make sure you follow me on all my other social media platforms and remember it doesn't take a lot it's just a little bit keep making that progress you can do this just step by step just keep going you'll be successful thanks for watching have a great day
00:10:31
[Music] you
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