The Franchise Way To Play The Population Trend

Thursday, March 29, 2007

Three years ago, Curt M. Maier retired before he turned 50 from his job as a general manager with Air Products and Chemicals, and began looking for entrepreneurial opportunities.

"I wanted to find a business I could follow the processes and procedures and be pretty much assured of realizing a profit," said Mr. Maier of Allentown, Pa. "I wanted to find something that would generate the kind of compensation that would support my lifestyle." After reviewing franchise opportunities from janitorial services to upscale child care centers, he ultimately decided on opening a SarahCare adult day center, which serves the elderly and those with a disability. The model was created by Dr. Merle D. Griff, a gerontologist, who opened the first SarahCare center in Canton, Ohio, in 1985. He began franchising in 2004.

With the leading edge of the baby boomers creeping toward 65, adult day care businesses as well as many others geared toward serving the aging population are increasingly cited as a good place for entrepreneurs to look for opportunities.

"The market opportunities are bigger than Barbie," said Mary Furlong, a entrepreneurship professor at Santa Clara University and author of "Turning Silver Into Gold: How to Profit in the Boomer Marketplace" (Financial Times Press, 2007). And although most adult day care centers are still operated as part of a larger organization like a skilled nursing home or medical center, they are gaining in popularity with entrepreneurs, as well as companies that are developing chains.

A look at the numbers helps to explain why. Although there are more than 3,500 adult day centers providing care for 150,000 people, the National Adult Day Services Association estimates that more than 5,400 are needed.

With the portion of the population 65 and over expected to grow to 20 percent by 2030 from 12.4 percent, demand is projected to skyrocket.

"The numbers are in our favor," Dr. Griff said. "The number of elderly is only going to continue to explode, and with federal and state governments really trying to keep as many people in their home as possible, this is an area full of opportunity." Two SarahCare centers are run by the corporation, with 18 franchise operations open and another 30 sold and in the development process. Of those, 17 are expected to open in 2007.

In the last four years, she said, the corporation has doubled its income.

But if opportunity seems boundless, there are some realities to consider, according to those who have studied the market.

"As far as the entrepreneurial side, what I see happening a lot is that many individuals see a need in their community and they want to open an adult day center and they want to be for-profit," said Nancy J. Cox, who led the study that examined the number of adult day service programs, a project of the Robert Wood Johnson Foundation. "In about a year, they convert to nonprofit. They've not been able to make a go of it financially." By becoming nonprofit, she said, they get access to grants and donations and contributions.

That is a lesson learned early on by Rena McNeil, a registered nurse who opened a commercial adult day center in Cahokia, Ill., in 2004. Although she is still commercial, she joined with a nonprofit community center in East St. Louis last year to open a center after finding it difficult on her own.

She said the new arrangement allowed her to receive state funding not available before as well as tax breaks on supplies.

"I did not go into this to get rich," she said, "but I do need to pay the staff and make a living." She estimates she needs to have 45 to 50 clients to generate enough revenue to make the business worthwhile. She currently has about 24.

Ms. Cox, national director of Partners in Caregiving, which works to promote adult day services throughout the country, said that starting out too small is a mistake made by many adult day centers.

"I think it can be a viable business as long as you know what you're doing," she said.

She noted that there are two types of adult day centers, social and medical. The medical have a therapeutic aspect that makes them eligible for some government funding, typically Medicaid.

The Active Day Corporation, which owns a chain of adult day centers, is banking on government money and strength in numbers by bringing together adult day centers from Florida to Massachusetts.

"The margins are relatively small and difficult for individual centers," said Kris Baldock, president and chief executive of Active Day, based in Owings Mills, Md., outside Baltimore.

In the last 18 months, Active Day, has grown to 59 from 39 centers, and revenue has increased to about $50 million from $21 million, he said.

The company operates only centers with medical components, which makes them eligible for Medicaid funding. And the company operates in states that have better reimbursement programs than others.

Dr. Griff said what she hoped to do with SarahCare was provide entrepreneurs with a framework to open and operate high-quality, accredited adult day programs.

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Sarah Adult Day Services Inc.
800 Market Ave. N., #1230
Canton, OH

Phone: (330)454-3200
Toll Free: (800) 472-5544
Fax: (330)454-6807

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