Home Care Agency Due Diligence: A Buyer’s Review

What business model is actually being sold?

Identify the services delivered, who employs caregivers, which entity invoices clients and how the business is licensed where it operates. Separate agency-delivered non-medical care from registries, placement-only arrangements and skilled services. A model described casually as “home care” can have materially different operating and employment obligations.

Document the payer mix without blending the categories. Private-pay clients, long-term-care insurance reimbursements, Medicaid programs and other contracts can have different authorization, billing and collection processes. Ask for the executed agreements and evidence of actual receipts rather than treating every revenue line as interchangeable.

Illinois, for example, maintains specific home services agency licensing resources and ownership-change materials. That is evidence of an Illinois pathway, not a national licensing rule. Build the jurisdiction list from the target's actual service footprint. (Source: Illinois IDPH home services, retrieved 2026)

How can delivered hours be reconciled to revenue?

Start with the scheduling system's completed service records. Separate scheduled hours, cancelled hours, completed hours, billable hours, billed hours and credited hours. Explain the differences for the same reporting period and use a consistent service-date definition.

Select a risk-based sample with the accounting adviser: different payers, longer shifts, overtime periods, refunds and unusual adjustments. Trace each item from service evidence to invoice and later collection. A clean monthly total can conceal individual billing practices that deserve attention.

IRS recordkeeping guidance supports maintaining underlying income and expense evidence. The diligence task is to connect it to the agency's operating records and identify unexplained exceptions. (Source: IRS recordkeeping, retrieved 2026)

What belongs in the true cost of caregiver labor?

The hourly bill rate less the base pay rate is only a starting spread. Analyze actual payroll taxes, benefits, workers' compensation, paid leave, overtime, travel, training, recruiting and other applicable costs. Determine where each item sits in the accounts so it is not omitted or counted twice.

Separate direct service work from scheduling, supervision, training and other nonbillable time. If the owner fills open shifts without market compensation, identify the replacement plan and cost. If a temporary staffing agency covers critical assignments, examine the contract and continuing price rather than assuming the expense disappears after closing.

The DOL recordkeeping framework concerns accurate employee hours and wages. It does not validate the seller's worker classifications or determine that all compensation practices comply with every applicable rule. Employment counsel should assess those questions from the actual facts. (Source: DOL Fact Sheet 21, 2008)

How should caregiver retention be measured?

Define an active caregiver before calculating turnover. Decide whether the measure uses headcount or hours, how leave and intermittent work are treated, and which period applies. Keep the definition constant when comparing months. A seller's roster can include people who have not accepted an assignment recently.

Review the tenure and hours of the caregivers responsible for a material portion of service. Examine their availability, commuting patterns, role qualifications and assignment preferences. The question is whether the buyer can maintain existing commitments, not simply whether a large number of names exists in the system.

Ask the management team to explain missed shifts, repeated rescheduling and reliance on a small group for difficult coverage. Interview plans should protect confidentiality and comply with the seller's authorized process. A buyer should not call caregivers independently to test whether they would stay.

How durable are client and referral relationships?

Analyze client concentration using service hours and collected revenue, not just client counts. A single intensive assignment can be more important than many occasional clients. Consider the effect of normal changes in client needs and distinguish those from avoidable service failures.

Review referral sources by completed new starts, retained activity and collections. Separate a source that generated an inquiry from one associated with an active client relationship. Avoid assigning a purchase price to an informal promise that referrals will continue.

Identify relationships that depend personally on the owner. Determine whether the scheduler, care coordinator and broader team already maintain contact. The transition plan should preserve service responsiveness and appropriate communications without promising future referrals or making improper arrangements for them.

What should the buyer verify about licenses and payer enrollment?

Compare the legal owner, trade name, service locations, service categories and license terms. Review renewals, complaints, sanctions and material regulator correspondence. Identify whether the proposed ownership structure requires a new application, notice, consent or other action in each jurisdiction.

For Medicaid-related activity, examine program participation, authorizations, billing rules and required systems. Federal EVV applies to covered Medicaid personal care and home health services requiring in-home visits. Implementation details belong to the relevant state and program. (Source: Medicaid.gov EVV guidance)

Do not assume the buyer can use the seller's credentials until paperwork catches up. Prepare a service, billing and collection plan that the relevant legal, licensing and payer advisers have reviewed. The closing date must fit the approved operating pathway.

What changes if the agency is a franchise resale?

Read the existing franchise agreement, amendments and the documents proposed for the buyer. Identify recurring royalties, advertising contributions, technology obligations, territory, remaining term, transfer approval and required training. The buyer's future obligations may differ from the seller's historic expense structure.

The FTC's franchise guide explains how disclosure information and contract terms help a buyer investigate a franchise. It does not establish the terms of any particular home care resale. Obtain the current applicable documents and brand-specific legal review. (Source: FTC franchise buyer guide, 2020)

Compare unit-level performance with the seller's actual records. A system-wide earnings representation or territory demographic report does not prove this agency's collected revenue, caregiver availability or local reputation. Keep the franchise and independent scenarios grounded in their own costs.

How should cash collections and working capital be tested?

Reconcile aged receivables to subsequent cash and credits. Identify disputed hours, payer authorization gaps and balances being carried despite repeated nonpayment. Examine whether the seller collected unusually aggressively before the reporting date or delayed ordinary expenses.

Build the buyer's opening cash forecast from payroll dates and actual billing cycles. If the seller keeps pre-closing receivables, the buyer may need funds for new service delivery before new revenue is collected. State clearly who handles mixed-period payments, refunds and billing corrections.

Keep client deposits and advance payments connected to the obligations they support. A cash balance should not be treated as available acquisition funding without determining whether it belongs to the business free of a refund or future-service obligation.

What is a useful owner-dependence test?

Map a normal week by task: intake, assessments where applicable, scheduling, recruiting, payroll approval, billing, complaints, vendor management and payer follow-up. Record who performs each task, the backup person and the systems used. Include work performed informally outside office hours.

An illustrative agency may appear manager-run because a scheduler handles daily assignments, while the owner resolves all weekend coverage and billing disputes. The buyer needs that workload in the staffing and transition budget. Removing owner compensation without replacing the duties overstates transferable earnings.

Ask what would fail if the seller were unavailable during the transition. Turn the answer into a specific training and handoff plan with deadlines, documents and a responsible buyer-side person. Avoid a vague dependence on the seller being reachable indefinitely.

How can diligence protect clients and employees?

Use aggregate and appropriately coded records for initial analysis. Have qualified advisers decide when more sensitive information is necessary and under what authority it can be shared. Removing a name alone does not necessarily de-identify an activity record. (Source: HHS de-identification guidance)

Coordinate site visits and interviews with the seller. Keep the buyer's request log organized so the operating team does not repeatedly produce the same information. Diligence should identify service risks while allowing caregivers and managers to continue their work.

Which findings should change the offer or closing plan?

Separate a correctable documentation gap from a material operating or legal issue. Unreconciled service revenue, unsupported labor add-backs, an uncertain licensing path or persistent inability to staff commitments may require more investigation, different terms or a decision not to proceed.

Prepare an issue register with the evidence, estimated commercial effect, responsible adviser and required resolution. Jason Taken can help coordinate the transaction work; the accountant, employment attorney, healthcare attorney and operating specialists should reach conclusions within their disciplines. The buyer's final offer should reflect what that review establishes.

Terms to use in your review

Define the bill rate and gross margin before comparing agencies. Use AR aging by payer to examine collection risk and referral concentration to examine dependence on a small set of relationships.

Connect the operating evidence

Compare the payer-mix schedule with authorized hours, completed visits and collections. The EVV transition guide adds the system-access, exception and records questions for affected services.