Arizona Assisted Living Due Diligence Checklist
Arizona assisted living owners must meet state licensing and manager certification requirements, including the change-of-ownership process before operating.
Financial review
Start here, because everything else is a variation on whether the earnings are real.
- Business tax returns and financial statements for several years
- Monthly revenue by resident, not just an annual total
- Payroll records, including what the owner and any family members are paid
- A list of expenses that are personal, one-time or otherwise not part of normal operations
- Vendor contracts and recurring service costs
- Property expenses: taxes, insurance, utilities and maintenance
Census and resident review
In a ten-bed home the resident roster is the business. What you want to see is stability, not a single good month.
- Occupancy month by month over several years
- Current resident agreements and the rates each resident actually pays
- Payor mix between private pay and the state long-term care system
- Length of stay and the pattern of move-outs
- Care levels of current residents, and whether the licence covers them
- Where residents are referred from, and whether those relationships follow the seller out the door
Staffing review
Staff decide whether the operation survives the transition.
- Current roster, schedules and actual hours worked
- Wage rates and how they compare to what the local market is paying now
- Turnover over the past two years
- Who holds the manager certification and whether that person is staying
- How much of the work the owner personally performs, which is a cost a buyer will inherit
- Any outstanding employment issues or claims
Licensing and compliance history
The licence is only as good as the record behind it.
- Current licence, including the service level it covers
- Inspection reports and any findings, along with how they were resolved
- Complaints and their outcomes
- Required policies, procedures and resident service plans
- What the change of ownership process will require and how long it is likely to take
- Any outstanding employment issues or claims
Physical property, fire and life safety
Residential properties adapted for licensed care carry risks a standard home inspection does not look for.
Practically,
- Standard inspection plus roof, HVAC, plumbing and electrical
- Deferred maintenance and the cost to catch up
- Accessibility features and whether they match the licensed care level
- Fire and life safety systems and the current inspection status
- Certificate of occupancy and approved building plans
- Whether past modifications were permitted
Zoning and local approvals
This is the item most often skipped, and it is the one that can make a property unusable for its intended purpose.
Confirm with the city that the specific address supports the intended assisted living use, and that any required use permit, zoning clearance or local approval is actually in place. Do not rely on a zoning label, on what the seller believes, or on the fact that the home is already operating. Verify the address with the jurisdiction.
Making the checklist work inside a contract
Due diligence fails on timing more often than on substance. Request everything at once rather than in waves, put the contingency period in writing with enough room for the state and the lender to respond, and start the licensing conversation in the same week the contract is signed.
If the seller is slow to produce records, treat that as information about the business, not just about the seller.
Request
All records together
Allow
Time for responses
Start
Licensing in the same week
✦ Questions
Common due diligence questions
How long should due diligence take?
Long enough to receive financials, review licensing history, get the property inspected and hear back from the city. Contingency periods that work for a residential purchase are usually too short here.
What is the biggest thing buyers miss?
Two things. Verifying zoning and use for the specific address, and costing out what the owner does personally that a buyer would have to pay someone else to do.
Can I talk to the staff before closing?
Usually not early. Most sellers keep a sale confidential to protect residents and staff, so staff conversations tend to be arranged late and carefully.
What if the seller will not provide records?
Then you cannot value the business, and you should price the deal as if the revenue is unproven, or walk away.