Will Your Assisted Living Business Be Profitable? Find Out Now!
Mar 13, 2025
Starting an assisted living business is a rewarding venture, but ensuring profitability is essential for long-term success. To build a financially sound operation, it's crucial to understand underwriting—the process of evaluating the financial viability and risks of your business model.
In this guide, we'll explore what underwriting includes, its importance in assisted living investing, and the key elements needed for effective execution. By mastering these concepts, you'll be better equipped to create a thriving and sustainable assisted living facility.
Check out the video, too:
What Is Underwriting?
Underwriting is the financial analysis of historical and projected financials to assess whether an assisted living facility (ALF) is a profitable investment. It consists of two main components:
- Reviewing Historical Financials:
When buying an existing facility, request documents like tax returns and profit and loss statements to understand the business's past performance. - Projecting Future Financials:
You can predict future performance using past data by considering factors like inflation, operational adjustments, and expected resident occupancy rates to enhance your projections.
Why Is Underwriting Crucial?
Underwriting helps you understand your business’ financial health. By looking at past data and future predictions, you can:
- Identify potential risks or gaps in financial planning.
- Understand your operating costs and how they may fluctuate over time.
- Present a well-thought-out financial plan to lenders or investors.
Proper underwriting builds confidence in your numbers, ensuring your assisted living business is financially sound.
Steps for Successful Underwriting
- Gather Historical Financials:
When buying an existing facility, obtain at least three years of financial records, as banks typically need this to evaluate average expenses like utilities, wages, and groceries. - Calculate Averages:
Calculate annual averages for each expense category and divide by 12 for monthly costs. For instance, if groceries cost $60,000 annually, the monthly average is $5,000. - Develop a Monthly Proforma:
Create a 24–36 month proforma to project monthly income and expenses, accounting for seasonal changes, one-time payments (e.g., taxes), and recurring expenses (e.g., insurance). - Adjust for Future Variables:
Consider factors like inflation and occupancy changes. For example, if grocery costs rise by 3% annually, update your proforma to reflect that. - Account for Startup Costs and Debt Service:
Factor in initial expenses like capital improvements and operating capital. Knowing your debt service is important for profitability.
Tools to Simplify Underwriting
Using specialized tools can make underwriting less daunting:
- Download the free underwriting calculator to streamline financial data and identify key profitability metrics.
- Download the free Business Planning Guide for in-depth instructions on crafting projections, assumptions, and financial analyses.
Refining Your Projections
Underwriting is an ongoing process. After creating your initial proforma, set it aside for a day or two, then revisit and reevaluate your assumptions. Repeat this to build confidence in your financial projections.
What’s Next?
If you're interested in diving deeper into the assisted living business, download your free Business Plan Checklist to help you create a successful business plan for your assisted living facility.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:00
hey friend I'm Brandon Gustafson I help beginners like you launch their Assisted Living business in the next 12 months in today's video we're going to be talking about how to know if your Assisted Living business is going to be profitable so if you want to know that make sure you stick around for today's [Music] video hey friend welcome to Assisted Living investing before we get started want to remind you to get over to the website assisted Liv investing. net you can get our free underwriting
00:00:29
calculators help you out we're going to be talking a lot about that in today's video so make sure you go and grab that now let's get into the topic for today's video how do you know if it's actually going to be profitable if this Assisted Living business you've heard is going to be profitable how do you actually know that it is if you want to learn more about this make sure you type in profitability down below just comment that so I can see you know who who wants a profitable facility so the way that
00:00:55
you know how it's profitable is underwriting what what is underwriting that that is the real question right underwriting is a financial review of the historical financials and then it's also a projection of future financials so what you want to do when you are doing your underwriting and you found a deal you want to go and talk to them especially if this is an existing business you want to say Okay I want to buy your business but I need to see how it's performed in the past they'll give
00:01:21
you tax returns they'll give you profit and loss statements they're going to give you all all of those types of things and then you're going to take that you're going to look at how it performed and then you're going to take that information again and you're going to project out into the future this is what they did this is what I think it's going to look like you know inflation this I'm going to add this thing I'm going to take this thing away and and put that in there those are the two main
00:01:42
components of underwriting how did it perform in the past how will it perform in the future if you're buying a a new facility a new home you're going to do a conversion what I would suggest that you do actually is find somebody that is selling something that is similar to what you want to build and then you're going to take those financials you're going to do the same thing you're going to look at past financials and you're going to project into the future what it's going to look like and then in your
00:02:06
business plan and we talked about this in a previous video we'll talk we'll throw it up there in your business plan you're going to write in your assumptions and you're going to say something like this is a new business but we are assuming that it will perform similarly to this business that is comparable to us in this geographic location has 10 beds whatever and this is how they operated what it cost them to do we project something similar 80% decrease because of XYZ 120% increase
00:02:33
because we have more residents I don't know whatever you want to put in there um but you want to State your assumptions um as you're going through it now the next piece of that is why is underwriting important underwriting is an important piece of the process because it helps you understand the finances and get a feel for what that looks like um how it's performed in the past what you think it's going to perform like in the future help you see some of those holes and make sure that
00:02:57
you are not having anything fall through the cracks and then it's going to to allow you to determine if you will be profitable or not um this is where you are going to decide if it can be profitable or not so for those of you that typed profitable comment profitable down below if you want to learn more about this this is the phase where you're going to learn how to do this so now that you know what underwriting is and why underwriting is important the question is how do you do underwriting
00:03:23
we talk about this in our business planning guide really in depth so go and check that out we'll put down a link down below if you need help with it comment be PG for business planning guide and we'll make sure you get a link sent directly to you um but assisted leading investing. net BPG is the the link that's going to take you and help you learn more about that so go check it out but at its core what you're going to be doing when you're underwriting is review those historical financials and
00:03:47
you want to find averages you want at least three years banks are going to ask for three years so you want three years look at averages for each of those expenses and say you know our the the average annual thing for groceries was $60,000 per year and that's probably high but you know let's you look at it you take that 60,000 and you divide that by 12 and now you're at $5,000 so now you know that on average it's about $5,000 per month for groceries you know it's simple math when you're looking at
00:04:15
it you look at annual averages divide by 12 get your monthly averages but when you do that and you do it correctly it's going to give you confidence that you know how much it's going to cost you to operate a facility so make sure you spend some time doing that now once you have those numbers now you're going to project into the future so let's say you know that it's $5,000 a month for groceries and again I'm just using this cuz it's simple math right $5,000 a month for groceries is going to be a
00:04:40
very large facility anyways so you've got that you you have that number and you know what it is now you're going to take that and you're going to project it out so in what's called a monthly proforma and check out our calculator down below so you can see exactly what this looks like but in a monthly Prof fora you have 24 36 months into the future month by month by month by month and so you're going to have in your grocery budget line you're going to have month one 5,000 month 2 5,000 month 3
00:05:06
5,000 you probably want to do this that how it's related to how many residents you have um so you know if you had a 100 residents then maybe it's 5,000 if you had 10 residents maybe it's 500 so you're going to kind of adjust those numbers based off of how many residents that you have inside of the facility but the way that you fluctuate that based off of the performa and how many people you want in the facility or how many you project to be in the facility um you're going to do that in your performance
00:05:31
you're going to you know take that out and then in year two maybe there's some inflation and it goes up by 3% so you're going to build that into it but you want to see what this looks like and then over the course of a year and two years you're going to see cool I spent $60,000 in grocery I spent you know $20,000 in groceries whatever the numbers are you want to kind of build those in a way that it makes it really easy for you to see on a month by month lenders really want to see this and it also gives you a
00:05:56
view of these things from like a seasonality perspective perspective there's going to be things that are a one-time payment that don't happen every month your taxes for example there's going to be just other things that you have that are going to be a monthly payment you know you could be looking at Insurance that's a quarterly payment maybe you want to do it monthly there's just all different ways to kind of look at these at your financials and figure out where it's going to fit in the
00:06:19
process so if you need some help understanding exactly what I'm talking about go check out the business planning guide type in comment BPG down below we'll make sure we get a link sent to you so you can go check out that course and see it will help you get a better understanding because if I'm speaking French to you and you're just like I like data spreadsheets I don't understand any of it the business planning guys going to be a great way for you to kind of understand what that
00:06:40
looks like so go check that out so in that in that monthly performa you're going to be wanting to look at the income that you have the expenses that you have what your net profit is going to look like so that you understand if it's going to be profitable or not so you are watching this video because you want to know if something is profitable or not you commented profitable down below because you want to know that this 24 months proforma is the spot for you to understand if it is profitable or not
00:07:05
you spent the time understanding what those expenses are you know what your income is going to be and this is where you're going to spend time and understand if it's profitable or not um so make sure you kind of build that out in a way that that makes sense I go through this entire process actually in my Mastermind program there's a master class on how I would actually underwrite a specific opportunity it was like an 8 to 10 bed facility and I went through is it something I would do or or not so if
00:07:30
you want to learn more about that and exactly what that looks like go check out The Mastermind program Assisted Living investing. netmaster mind will help you understand how I would actually underwrite an opportunity to see if it works for me or not to make a good decision on whether it's a profitable opportunity or not the other thing that you want to be aware of as you're doing your underwriting is you need to make sure that you are looking at your startup expenses so a really huge part
00:07:55
of what you're trying to do here as you build is understanding startup expenses and understanding what your Des service is but the the startup expenses that you're looking at are going to be your Capital Improvements the operating Capital that you want to have that all gets rolled into the the big Debt Service payment for when you are buying the facility all those things come together and you know a Debt Service payment of 5,000 is going to be significantly different than one that is 10,000 so you want to do some really
00:08:21
conservative underwriting to make sure you're confident in those numbers for what your Des service is going to be and how it's going to impact your bottom line you're going to put that into your 24th performa as well and the calculator on that tab at the bottom that's a section for you to put in that and then there's a spot for you to figure out what that death service looks like on the calculator as well assisted Liv investing. net calculator I will give you access to that free underwriting
00:08:42
calculator and then the other thing that I want to point out to you is once you do this once do it again and again and again and again and again spend the time working with these numbers so that you dream about them that is what's going to allow you to understand understand if you are profitable you have to you have to spend the time you cannot run at once and be like cool everything's good every time I look at my numbers I put them together I look at them I set them aside for a day for a night whatever I come
00:09:15
back to it I look at it and I'm like how did I miss putting groceries in here that that's a basic expense it's a huge one I forgot to do it you want to look at those things is going to allow you to understand if you're going to be profitable or not the this is how you become profitable to make sure that you are making profitable decision this is how you do it you spend time underwriting you spend time looking at the numbers get really comfortable with them and when you do that you're going
00:09:43
to be profitable if you need help figuring out some of the stuff and we've been talking about what underwriting is why you need to do it and how you do it if you need some help and some extra guidance check us out at the business planning guide Assisted Living investing. BPG uh simple course is going to help you understand the underwriting calculator give you some extra guidance on some of those Basics that you need to do instead of starting your Assisted Living business and if you need more
00:10:08
guidance check us out at The Mastermind program Assisted Living investing. netmaster we will link that down below or type in Mastermind and we will send you a link for it but it's a program that's really there to help give you the guidance that you need to help you be successful so if you found this information would be helpful make sure you like the video subscribe and ring the bell as well so you get notified every time we put out this content we do live on Tuesdays we put out content on
00:10:31
Thursdays uh we're giving you a lot of content and a lot of guidance to help you be successful cuz that's what I want to do you know does residential Assisted Living sound interesting to you Assisted Living investing. net we're here to help beginners like you learn the ins and outs to help you launch that Assisted Living business in the next 12 months so you can create the time of Financial Freedom that you want uh I love doing I love helping and coaching and and giving people guidance and I do that through my
00:10:54
programs and so I would love to help you if you feel like you need that guidance make sure you check out the links or comment m mind or BPG down below and we'll get that over to you and I want to remind you that it doesn't take a lot just a little bit keep going keep making progress step by step by step I promise you that if you do and you're consistent and persistent you're going to be successful thanks for watching and have a great day [Music]
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