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Tuesday, March 20, 2012

How I built and then destroyed a Home Care Agency

Last year I created a private duty home care agency called Windward Home Care. I built it up to having 50 employees and 35 clients. It was a business with over a million dollars in revenue. Everything seemed to be going well. In December of 2011 I pulled the plug on it.  I shuttered it, let all the employees go and gave notice to all our clients. Why? I learned something about the service industry I had never seen spelled out before. I am going to do my best to explain it in detail here.

First the short and happy history of Windward Home Care. As I mentioned before, since 2005, I have owned a physical therapy business. In 2010 I began to realize that I just can’t see myself being a therapist forever. To be honest, it's physically hard. Just ask my wife, her hands and wrists ache all the time from providing manual therapy. My back hurts from all the people I have to lift up and steady as they learn to walk. PT is not a job you can work at until you're 65. So, I thought we should try and capitalize on our healthcare knowledge and find some other health care business to transition into.

Private duty home care seemed the perfect solution. It’s a cash business where your clients, elderly people in their own homes, pay you for providing a caregiver to help them with daily living. It requires no start up capital, no building (you perform the service in people’s homes) and no licensing. The state of Hawaii requires no license to providing non-medical home care services. All we needed was a cadre of girls and guys willing and trained to provide sitting services, medication reminders, light housekeeping, driving, and meal preparation. 

So, we were thinking about all this when a huge opportunity presented itself. On our island, there was a private duty home care agency that was suddenly going belly-up. This agency had decided to also obtain a Medicare license, so in addition to providing non-medical home care, they provided certified Medicare services. I won’t go into all the details here, but they were committing Medicare fraud. In addition, they weren’t paying workman’s comp or even paying their employees. They soon imploded. So here was the opportunity; they suddenly had unemployed workers and in-need clients.

I knew this was a huge gift! I immediately hired their head nurse on the private duty side and head scheduler. This got me their client list, access to all their disgruntled employees, and credibility with the staff. They all knew the head nurse had done nothing wrong, it was the owner they were mad at. So, almost overnight, I had a huge business. I had no idea what I was doing. I was a physical therapist, not a manager of a nursing agency. But, I didn’t let that fact stop me. 

My first move was to hire an employee leasing company to take care of payroll, human resources and all the tax stuff. This was a little expensive, but very much worth it. On paper, the leasing agency actually owns the employees, not me. They work for me. I give the agency the hours, they pay them. Believe me, this is worth it when you have a lot of employees. And suddenly I did. We grew to 20 employees in one week. My nurse would sign up the new clients, call the workers to schedule their hours, and then do all the follow-up calls. My wife and I answered the phones, talked to perspective clients, and worked on advertising and hiring the new workers. The only thing that remained was the billing.

Billing is a big issue in any business. Knowing that you control the money from the client to your pocket is extremely important and will make or break you in the first year. I needed to give the client detailed weekly billing showing what they received and owed. They would use these bills for tax deduction, to submit to long term insurance companies, and to pay us. So these bills had to accurately show all hours, be free of mistakes, be clear and concise, and be submitted to the client on a weekly basis. Then all the billing had to be sent out to the client with a return payment envelope. Why? We had over 30 employees that had to be paid every other week. We needed the money flowing in otherwise we had to make up the difference. We learned from our PT practice that people pay faster when you send them a postage paid envelope. It's simple and it works. Trust me!

It took my wife an I a total of 9 hours every Sunday to complete the billing. During the week I had meetings with my nurse 2-3 times per week. I was also working my usual hours at my PT clinic (70 per week). So, this meant I was working 7 days a week. My wife was a huge help. She processed all the incoming payments, mailed out all the billing, and sent out all the requests for billing by long term care providers. I had already hired a girl to answer the phone during the day. And soon, we hired her sister to take the night time calling. I tried, unsuccessfully to hire a person to take care of the billing. I tried a CPA firm. They could do it but wanted $700 per week for the service. I tried to hire two different book keepers. They made so many mistakes, it just wasn’t worth my time.

Plus, I was really busy. I was fielding calls like “Your caregiver showed up drunk” and “Your girl stole my mother’s earrings” or “Your caregiver was 3 minutes late.” Now, my nurse and daytime secretary handled a lot of these, but a lot came to me. Then there were the employee issue: Failed drug tests, not showing up for work, sick leave, vacations, quit for a better job. It was endless. And I was not making any money!

That’s right!. I was bringing in over 80K a month, and nothing was profit. What? How could that be? Here are the reasons why:

1.     I was paying the workers too much. The company they had worked for before had paid them all around $13 per hour. In Hawaii, this is not a huge sum. I foolishly thought we should match that. So we paid everyone $12.50/hour.

2.     In Hawaii you have to provide healthcare for anyone working more than 20 hours a week. This is very expensive, the cheapest policy is about $400 per month. This meant if an employee only had 20 hours you were paying them an additional $5 per hour!  Now, many would say, just be sure everyone is at 40 hours. Well, I tried. Many clients prefer just one caregiver. But most clients only needed 10-15 hours per week. So lots of our girls were only working 20-30 hours. Only  a few were at 40 hours. The clients cancel. The workers cancel. Schedules change. It’s a logistical nightmare! We really worked at this and did mitigate the costs, but there were still people at 20 hours getting healthcare

3.     We were not charging enough. Most of the clients from the previous company were used to paying $20 per hour. Guess what? With all the overhead our cost was $20 per hour in many cases. And that was with my wife and I donating all our time. So, I did start most clients at 20 then raised them to $21 within 2 months. Then we did a couple of small rate increases bringing us to $22 on the average. What do other agencies charge? About $24.50. That $2.50 difference would have meant about $130,000 more in revenue.

So, we were surviving, but barely. We were putting time and energy in and getting nothing out. I kept believing that eventually we would raise rates, lower salaries, and make this thing profitable. So we kept at it. But there was something else.

She didn't work for us

The greatest problem we had was our employees. Our girls would not show up or show up late. The client would fire us. Our girls would try and cut a deal with the clients to pay them directly. Some clients would take the bait. It's hard to legally prevent. Our staff would say inappropriate things. Wear inappropriate clothing. Smoke. They were fat. They were ugly. They smelled bad. They made mistakes. They cooked too much. Too little. And on and on.

We tried incentives, pay bonuses, company stock ownership, retirement plans, you name it. We toyed with all these things. The bottom line is, we could not get our employees to think of our company as their company. Almost all our workers were locally born Filipino girls. Almost all of them worked 2 to 3 jobs. That’s right, you want to live in Hawaii you must work more than 40 hours a week. It is very hard for these workers to look at our job as anything more than paid hours. Most of them had no education and almost all of them spoke English as a second language. They were all very caring and were willing to work hard. But there are some cultural things about missing work, tardiness, and professionalism that are hard to correct. It was going to be an uphill battle to ever overcome this.

So I decided to sell. I put the word out to other agencies. I had meetings. They told me my clients weren’t paying enough and my girls were getting paid too much. No surprises!  But they all said it would just be too hard to buy my company and change all that. They said if they tried they would end up losing all the clients in the process. After the fourth rejection, I realized what I had to do. Close down.

And so, I notified the employees, the clients, and the payroll company. It was hard. At first they all thought I had gone bankrupt. Then I wrote them a detailed letter explaining the truth. That I would have to raise their fees more than $4 an hour just to stay in business. They understood. My worst fear was that people would hate me for shutting down. Just the opposite, they ended up thanking me for giving them a year of low priced service. The workers all thanked me for giving them a year of good and steady employment. They thanked me for being a good boss. For being fair to them.

I had a total of 76 employees over the course of the year. At one point we had 50 workers on payroll and 35 clients. I did have to fill in all that payroll and bill all those clients. In the end, I received every single dollar I billed out. I had to call a few people to get payment, but they all paid. They all thanked me. No one hated me or even thought I was a failure. When I added everything up, I earned about $20,000. Nothing to spit at, but not a huge sum for all the hours of work. I never took a penny from the company, so the check I did take was a sweet reward.

 I could have kept going. I could have built it up, raised the rates, and slowly hired new workers at lower pay. Eventually, I could have made it work. But it would have required a full time effort. I would have had to quit my PT practice. Running this business wasn't doing what I loved! With each increase in business, would have come an increase in problems and worry. I could have handled it. But I would never have been able to make the workers believe it was their company, and thus, I would always be working hard to keep it going. I have seen businesses where the workers feel a sense of ownership. Where they care enough to not undermine their company. Where they believe the incentive of the company is aligned with their own incentives. Windward Home Care would never achieve that. So I shut it off. 



  1. Doug,

    Great to finally hear the whole story...

  2. I've just been turned onto your blog by my boyfriend... Steve Brown.
    I've only read two of your blogs so far and they have been really honest and I'm so glad that I'm not the only one whose tried a myriad of opportunities and experienced those failures. Perhaps this doesn't make ME a failure after all. I feel better.

    I considered home care ownership years ago... it's back on my radar again. You're blog was perfect timing. Thank you. Christine

  3. Continue posting about this topic because it's very interesting. Mine I started my blog with very basic.Thanks for the post.