When preparing to sell your home care agency, the golden metric is EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This is the number buyers base their valuation multiples on.
While you focus on increasing revenue, savvy sellers know that maximizing your EBITDA often involves digging deep into your expenses to find the "leaks." These hidden, often discretionary, costs can significantly drag down your profitability and reduce your final sale price.
Here’s where to look and how to fix those hidden costs before a buyer's due diligence team finds them first.
1. Owner-Specific and Discretionary Expenses
These costs are the most common source of "EBITDA drag" and are typically the first thing buyers adjust for—a process called "add-backs." However, the more you clean them up before listing, the cleaner your books look, which increases buyer confidence.
Hidden Cost | The Drag | The Fix |
Excessive Owner Salary/Benefits | Paying yourself a salary far above the industry standard for your role reduces operating profit. | Adjust the owner's salary to a market-rate replacement cost (what a non-owner would charge). |
Personal Use of Company Assets | Paying for a luxury vehicle lease, family health insurance, or personal travel through the business. | Move all personal expenses off the company books and into a shareholder distribution account. |
"Pet Projects" | Non-essential consulting, excessive marketing (e.g., billboards in unproven markets), or memberships that won't continue post-sale. | Cut non-essential or one-time costs. Be ready to defend every large expense as necessary for core operations. |
2. Inefficient Staffing and Recruiting Spend
Staffing costs are the largest expense for any home care agency, making them a prime area for profitability leakage.
- The Cost of Churn: Every time a caregiver quits, you incur a measurable cost of separation, recruitment, training, and onboarding. High turnover is a massive hidden cost that erodes profit and signals operational instability to a buyer.
- The Fix: Invest in retention. Simple strategies like quarterly bonuses, clear career paths, and check-ins can significantly reduce turnover and, therefore, your recruitment spending.
- Recruiting Overload: Are you paying high fees to external staffing agencies or using multiple expensive job boards?
- The Fix: Review your cost-per-hire. Focus on internal referral programs—they are often the lowest-cost, highest-quality source of new hires.
3. Technology and Administrative Bloat
The tools you use should streamline your business, not complicate it or drain cash flow.
- Underutilized Software Subscriptions: Many agencies pay monthly fees for unused software (HR platforms, CRM tools, or reporting systems) purchased years ago.
- The Fix: Conduct a software subscription audit. Cancel anything not essential to daily scheduling, billing, or compliance.
- Manual/Paper Processes: Relying on paper or redundant manual data entry is slow, error-prone, and requires more administrative staff than a digitized workflow.
- The Fix: Transition fully to an integrated Electronic Health Record (EHR) and billing system to reduce administrative labor costs and improve billing efficiency.
4. Unoptimized Payer Mix and Collection
This isn't a "cost" in the traditional sense, but it directly impacts the cash you keep from your revenue.
- Slow Collections: Do you have significant Accounts Receivable (A/R) aging past 90 or 120 days? This represents cash that is essentially trapped.
- The Fix: Aggressively clean up your A/R. Write off uncollectible debt and streamline billing processes before due diligence. Buyers discount agencies heavily for messy, old receivables.
- Low-Margin Contracts: Are you still servicing legacy contracts or payers with exceptionally low reimbursement rates?
- The Fix: Review and renegotiate all contracts. If a contract is consistently below your target margin, be prepared to phase out or decline services to focus on higher-margin work.
Ready to Uncover Your Agency's True Profitability?
Identifying and justifying these costs is the key to maximizing your Adjusted EBITDA and attracting the best offers. Don't wait for a buyer's team to find the issues and use them to lower their offer—be proactive!
For a fast, easy way to get an initial snapshot of your agency's value, you can use our simple calculator here:
If you are ready for a deep financial dive that accounts for all these hidden costs and provides an extremely accurate valuation, we recommend the comprehensive tool below. It’s the essential step for maximizing your sale price and getting an instant offer to buy your agency.