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Taking Care Is Business

For this senior-care provider, profit starts at home.

Many of us belong to what has been coined the "Sandwich Generation"--middle-aged folks with children who are growing and parents who are becoming increasingly feeble and dependent on us. Fortunately, the business community has rallied to our aid by increasing the services that are available to the elderly. In line with this trend, Omaha, Nebraska-based franchisor Home Instead was recently named the No. 1 franchisor in the Senior Care/Companion Services category in Entrepreneur's 20th Annual Franchise 500®, taking the top spot for the second year in a row.

Be aware, though, that this category includes only three other companies, and two of them just started doing business in the past two years. In other words, this business hasn't been proved over the long run. In addition, major companies such as Marriott are jumping into their own brands of elder care. Nonetheless, Home Instead has experienced exponential growth since the end of 1995, when it had nine franchisees. The company, started in 1994, now boasts more than 158 franchised locations in 33 states.

Many of the factors that cause a franchise concept to expand rapidly have nothing to do with its eventual success. For example, Home Instead has a relatively low barrier to entry because the business can be operated out of a small rental office space with low initial overhead. In fact, Home Instead estimates that the initial investment, which includes the $15,500 initial franchise fee, ranges from just $21,000 to $27,700. That kind of start-up certainly sounds attractive, and many potential franchisees are drawn to the company as a low-investment opportunity.

In reality, the overriding cost in this business is labor, and the country's current low unemployment rate has made it especially difficult for Home Instead franchisees to find and hire qualified caregivers. Home Instead is designed to be a nonmedical, low-cost alternative to nursing homes and day-care services, and customers are charged between $10.50 and $16.50 per hour. This only leaves room to pay caregivers a little more than minimum wage. Because caregivers also must be scrutinized for criminal history, be bonded and enjoy working with the elderly, the lack of potential personnel could impair expansion efforts and require franchisees to turn away potential business.

A franchise's strongest assets are cohesive unions both between franchisor and franchisees and among the franchisees. In this regard, Home Instead seems to be on the right path. Paul R. Hogan, the founder and president of the company, was formerly the franchise-development manager for Merry Maids, and he appears to be inspirational and effective as a communicator. The franchisees I spoke with respected each other and, moreover, respected the efforts, training and support provided by the franchisor.

The franchisor doesn't make earnings claims, but reviewing the corporate newsletters sent to franchisees provides some insight. Home Instead has an annual program that honors franchisees whose total revenues between May 1 and August 31 exceed a specified amount. Thirty-three franchisees exceeded 1998's limit of $100,000. Also, the first franchisee to join the system is now operating seven franchised territories and had 1998 sales of $1.2 million.

On the other hand, the Uniform Franchise Offering Circular indicated that at the end of 1997, when there were 99 franchises in operation, three franchisees' units either were terminated, were canceled or had otherwise lost touch with the franchisor. Just remember, when you're a pioneer, there are no guarantees.


Todd Maddocks is a franchise attorney and small-business consultant. You can reach him at TMaddocks@aol.com

Contact Source

Home Instead, http://www.homeinstead.com

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This article was originally published in the February 1999 print edition of Entrepreneur with the headline: Taking Care Is Business.

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