March 1, 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 405,369 tax returns that were filed in the home health care industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their home health care business.
We hope that this data will be helpful for you as a “reality check” for your financial projections and home health care business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many home health care businesses in the US are sole proprietorships
There are approximately 405,000 home health care businesses in the US organized as sole proprietorships. We specifically analyzed 405,369 companies based on the 2019 IRS tax return data.
Average annual revenue for home health care companies
The average annual revenue for all sole proprietorship home health care businesses in the U.S. was just $21,825.
This seemed incredibly low to me. Here is my hunch why this average revenue might be so low. It seems that there are some individuals that will start a home health care business basically for the sole purpose of caring for a loved one. This could drive down the average revenue per business substantially.
I can share from experience in working with many different home health care agencies that the average annual revenue is significantly higher than $21,000. This underscores the importance of creating your own home health care projections.
Average annual expenses for a home health business
The average annual expenses for all sole proprietorship home health businesses in the U.S. was $15,909.
The raw dollar amount is less important here, the important thing to note is that all expenses for a home health care business amounted to 73% of total revenue.
Average net profit margin for a home health care business
The average net profit margin for a home health care company was 27%.
How much can I make by owning a home health care business?
If you are wondering how much you might be able to make by owning your own home health care practice, you can get a good idea by creating a revenue projection based on the number of billable staff hours you expect to have. Then you can estimate the average billable rate per hour x the number of billable hours. That will give you total revenue, then simply multiply that by 27% (the net profit margin) to come up with a forecasted profit as the owner of the business.
Top 8 expenses for a home health care business
Based on the tax returns of 405,000+ sole proprietors operating in the home health services industry, the following were the 9 largest business expenses as a percentage of revenue.
Average labor cost for a home health agency
The average home health care agency spent 20% of revenue on labor costs.
Average material cost for an in home health care business
The average home health agency spent 4% of annual revenue on supplies and other material costs. This would be for things like disposable supplies used during routine services.
Average car and truck expense for a home health business
The average sole proprietor home health care agency spent roughly 14% of annual revenue on car and truck expenses which could include fuel, repairs and maintenance and vehicle leasing expenses.
Other than staffing this is the largest operating expense for a home health business because you are driving to your customer’s home, typically in company owned vehicles.
Average utilities cost for a home health agency
The average sole proprietor home health care company spent roughly 4% of annual revenue on utilities.
Since a home health agency would be working primarily out of the patients home, and not a large office, I suspect that this “utilities” cost is actually fuel expense for the vehicles. Some business owners may include fuel expense in utilities while some may include in car and truck expenses.
Important Details about the Data
I want to point out a few key items about the data:
- You can download this data for free from the IRS website.
- The data includes 405,369 home health care sole proprietorships in the U.S. in 2019. This will include businesses with a single employee or owner operator, but could also include a business with many employees.
- This data will include businesses that operate full time, and businesses that only operate on a part time basis.
- Because of this, you should take the raw numbers for revenue, expenses and profit with a grain of salt, but the percentages can still be quite valuable when trying to forecast expenses for your business.
- This data includes businesses from all across the country, keep in mind that revenue and expenses can vary greatly based on your specific geographic location.
- We used 2019 data because we felt it was most likely to be representative of a “normal” environment for the industry. COVID-19 caused disruption to almost every business in 2020 and 2021, so we wanted to utilize “normalized” data.
If you have any questions about the data or how to utilize the data in your financial forecasting process please don’t hesitate to reach out to us!
