Q: Do I need an exit strategy?
A: Many owner/operators say they don’t intend to sell; they plan to ride out the various business cycles and they’re not about to leave the senior living industry. But having a sound exit strategy doesn’t necessarily mean you’re actually planning to get out. It’s somewhat like thinking about our life expectancy. To stay healthy, should you do anything differently? In early 2016, you can use an exit strategy for several beneficial reasons.
Here is a simple strategy for estimating the approximate value of this exit strategy by determining today’s valuation, using a capitalization rate of 7%. Simply divide your actual annual net operating income (NOI) by 0.07. If your community has annual revenue of $3.6 million and expenses of $2.3 million representing an operating profit margin of 36%, then the NOI from this performance would be $1.3 million. Dividing that annual NOI figure by 0.07 reflects a preliminary value of approximately $18.6 million. Many who went through that simple exercise have changed their attitude about whether to consider an exit strategy.
Whether you actually decide to sell is an important decision. Whether you plan to fold your cards soon or hold them for a long time, having a sound exit strategy can only help.
Jim Moore runs a national senior housing and healthcare consulting firm based in Fort Worth, TX. He has written several books about assisted living and senior housing, including Assisted-Living Strategies for Changing Markets.