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2017's Best and Worst Home Care Franchises by Performance Disclosures

ComForCare
The signage of a ComForCare franchise in an office complex

A new report is out for buyers interested in home care franchises. It ranks home care franchise investments by metrics that franchisors disclose publicly to regulators and buyers. According to a research firm of Franchise Disclosure Document (FDD), companies such as ComForCare rise to the top of their class while franchisors such as Touching Hearts fall to the bottom of the barrel.

In the past decades, franchise unit investors have relied heavily on a "get on the bus" factor. That is to say, if a franchise system was growing quickly and buyers begin to see store signs pop up around them, the buyers, acting more like a consumer, became interested in the brand. That is why so many lists are really rankings of which system is growing the fastest in franchises, or which system is larger and more established.

A traditional buyer might also consider social trends. In home care, the change in demographics looks favorable to home care services. The United States has seen a growth in its aging population and those in need of home care services.

But all of that can be deceptive. There is more to intelligently buying a franchise than appreciating overarching social trends. There is also much more to a franchise-level investment than how quickly a franchisor's sales team can have buyers locked into franchise contracts to build a franchise system.  Nowadays, there are financial, legal and operation metrics that can be crunched and compared between brands and industry segments at the franchise unit level that investors can use.

This more robust due diligence that focuses on franchise unit metrics and the new breed of researchers that provides this information is evident in FranchiseGrade.com's 2017 report on the home care segment.

The home care segment of health care is fast growing, which will please traditional buyers. It is one of the fastest growing industries in the United States, according to FranchiseGrade.com, which has sliced and diced thousands of existing U.S. Franchise Disclosure Documents released in 2016 to regulators and buyers by franchisors. The high home care growth is evident in that in 2010 there were only 34 franchisors, but by the end of 2015 the segment had 69 registered franchise systems, reports the researcher. Health care franchise unit numbers have boomed as well.

The researcher has graded franchise investments from an F to an A, summarizing various aspects of franchise-level performance for prospective franchisee investors. Of those franchises, 15 achieved an A grade that is weighted on franchise-level financial performance, number of lawsuits, franchise unit growth, outlet turnover rates and other disclosures to state regulators.



Top of the home care franchising class

Franchisor

Strengths

ComForCare

Discloses avg gross sales of franchises, exclusive territory, 10-yr contract, low turnover, system growth

Carebuilders

Avg gross sales of $632k, 10-yr contract, low turnover, growth

Homewatch Caregivers

Avg gross sales of $1.3M, protected territory, low turnover, 10-yr. contract, growth

One of the attractions to buyers is the lower investment costs of home care franchises, many of which are home based. Another factor in judging whether to invest in this particular segment or a specific brand is what is the franchise unit turnover rate. Simply said, are franchises bubbling up and then popping faster than one can say, "This franchise is putting me in debtors' prison?"

Information like that is where this new breed of researchers is trying to make a difference. Based on required reports that franchisors must provide to government regulators, numbers from the home care sector show good news. At a rate of 9.6 percent turnover of franchises in 2015, home care service franchisors had lower franchise unit turnover–that is to say franchises going into and then exiting their businesses–than the franchise industry as a whole or even personal service franchises (see chart).

The researcher points out that investors really want to focus on A-grade franchisors because it is A-grade franchisors that are pulling up the home care segment. When compared to those that received grades of B or lower, the A grades represented 21 percent of the number of home care franchises, but they accounted for nearly 40 percent of net franchise growth in the sector. In other words, while the mediocre franchisors struggle to keep their franchises afloat, churning an outlet from one buyer to the next, the A-grade franchisors do not.

The home care industry over the past several years has enjoyed tremendous success," says FranchiseGrade.com's chief operating officer, Ed Teixeira. Once a multimillion-dollar home-healthcare franchisee, Teixeira says that health care franchises have seen an unprecedented boom in terms of the number of franchise systems as well as franchises. Teixeira, who has also been an executive in many franchising firms over the years, is worried that the appeal of fast-growing health care is attracting some ill-equipped and ill-informed franchisors that simply wish to capitalize on the popularity and growth of this franchise sector. "In my opinion the overriding challenge in this industry is that franchisors need to better diversify their services so that franchises aren't simply offering the same commoditized home care service as everyone else," says the author of The Franchise Buyers Manual. Teixeira is worried that the field is getting crowded. "The competition is making it difficult for franchises in some ordinary systems to generate revenues."



Home care franchising flunkees

Franchisor

Weaknesses

Caring Transitions

No franchise-level earnings disclosure, low growth, high turnover

IKOR

Low growth, contract 

Touching Hearts at Home

No franchise-level earnings disclosure, low growth, high turnover

Listed above are three home care franchisors at the top of their class.

Of course, investing in something entails money and a return on investment. In other words, how much can this franchise make? That doesn't just mean knowing the average gross sales of franchises, but the investor also needs to know how much are average franchise-level expenses and profits.

When it comes to franchise-level average gross sales, those that have good numbers flaunt them. Those that do not, hide them. From data collected from Franchise Disclosure Documents, FranchiseGrade.com says that 95 percent of the few A-grade franchisors disclosed some sort of franchise unit financial performance measurement in their FDD, compared to a meager 50 percent for the rest of home care franchisors.

Adjacent are three brands at the bottom of their 69-member home care franchisor class, according to the disclosure document research firm.

"This report is the latest step we're taking to provide franchise investors with the most thorough and comprehensive analysis of individual franchise system performance available in the franchise industry," says Jeff Lefler, CEO of FranchiseGrade.com. He points out that this information is compiled by his firm for franchisees and prospective franchisees. "The information in this report gives prospective franchisees the guidance they need to invest with confidence in the home care franchise industry by pinpointing the best performing systems," states Lefler.

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