EVERY OWNER WANTS TO KNOW WHAT THEIR BUSINESS IS WORTH.
It can be said that nursing homes are one of the most complex businesses out there. You not only have to worry about the standard concerns such as payroll, employee relations,finances, growing revenue and facility expenses. Skilled Nursing Facilities have additional concerns such as healthcare,mortality, intense government regulation and extended families.
How can you take all of that into account and know what someone might buy it from you for?
There are a number of techniques that can be used and the one that will be introduced in this article is the discounted cash flow analysis.
What You’ll Need
- Income statement from previous year
- Current YTD income statement.
- Census report from previous year.
- Current YTD census report.
- Past 3 years capital expenditure reports.
STEPS FOR A NURSING HOME DISCOUNTED CASH FLOW ANALYSIS
1. Gather your last full year income statement
If it is June 3rd, 2020 right now, you need to collect you completed 2019 income statement that includes your detailed income and expenses reported on a monthly basis. These might also be called financials, profit & loss statements or P&Ls.
2. Gather your current year-to-date income statement
Assuming it is still June 3rd, 2020, you need to collect your January 2020 through May 2020 income and expenses.
4. Gather your last full year census reports
If it is June 3rd, 2020 right now, you need to collect you completed 2019 census reports that are reported on a monthly basis.
5. Gather your current year-to-date census report
Assuming it is still June 3rd, 2020, you need to collect your January 2020 through May 2020 census reports
6. Forecast your current year-end census
Assuming June 3rd, 2020, the forecast will project to December 31, 2020.
7. Gather Your Past Three Year Capital Expenditure Reports
Based on it being June 3rd, 2020, you will prepare a list based on capital expenditures for 2017, 2018 and 2019. These reports might also be called your fixed asset report.
8. Contact a Lender
One that has experience with financing nursing homes and inquire to the current loan terms for a facility such as yours.
9. Determine Appropriate Capitalization Rate For Your Facility
The three methods for determining your cap rates are; Sales Comparables, Band of Investments or the Discount Rate. The method that you use will be based on your market information available.
10. Discounted Cash Flow (DCF) Analysis
This is the process of discounting annual cash flows(future NOI) and the projected value of the facility into the present value.
The calculated present value provides you an indication of the value of you facility. You will want to ‘sanity check’ your value with known sales comparables within your market and adjust according to market & facility differences.
Laurex Advisors is available to help you with this process so that you will know what your Nursing Home is worth.