Purchasing an Adult Foster Care (AFC) business in Michigan requires careful planning and adherence to state licensing regulations. While acquiring an AFC business can be a rewarding investment, it is crucial to understand Michigan’s Adult Foster Care Licensing Rules to ensure compliance and a smooth transition.

Understanding Licensing Regulations:

One of the most critical aspects to recognize is that AFC licenses in Michigan cannot be sold or transferred. According to Michigan Administrative Code R 400.14102, an AFC license is issued to a specific person or entity and is not transferable upon the sale of a business. This means that if you are purchasing an AFC business, you are not buying the license itself, but rather the assets, operations, and goodwill of the business.

Buying the Business, Not the Corporation:

When purchasing an existing AFC business, buyers must decide whether to:

1. Buy the assets of the business – This includes real estate (if applicable), operational procedures, staff, residents, and goodwill, but not the existing corporation that owns it. The new owner must apply for a new AFC license through the Michigan Department of Licensing and Regulatory Affairs (LARA) and you, as a buyer, ae subject to the same regulatory requirements as the seller has been.
2. Buy the seller’s corporation – Some financial experts will tell you that this is not recommended because it could mean inheriting past regulatory violations, financial liabilities, or legal issues associated with the seller’s business entity. Most buyers prefer to establish a new corporation or LLC and purchase the business assets while applying for a new license.

The Role of a Real Estate Agent:

If real estate is included in the AFC business purchase, working with a real estate agent experienced in commercial or health care properties is invaluable. They can:

• Ensure the property meets AFC licensing requirements, including zoning, safety, and physical plant standards as required by R 400.14201 – R 400.14209.
• Negotiate a fair purchase price and facilitate financing options.
• Coordinate property inspections to identify potential compliance issues that could impact licensing approval.

Evaluating Financial and Regulatory Performance:

Before purchasing an AFC business, due diligence is essential to assess the financial health and regulatory standing of the operation. Buyers should:

• Review financial statements to analyze revenue, expenses, and profit margins.
• Examine Medicaid billing records and private pay agreements to verify cash flow sustainability.
• Obtain the home’s compliance history from LARA, including previous licensing inspections, corrective action plans, and any enforcement actions.
• Consult an AFC business expert to assess whether the staffing model, service agreements, and resident care plans are sustainable under the new ownership.

Our Summary and Conclusion…

Purchasing an Adult Foster Care business in Michigan is a multi-step process that involves securing a new license, conducting financial and regulatory due diligence, and managing real estate considerations carefully. Working with AFC industry professionals, real estate experts, and regulatory consultants ensures a seamless transition and positions new owners for long-term success in residential care.

For more guidance on purchasing an AFC business, contact us, or more importantly speak with the state department that licenses these facilities, understanding they are likely not allowed to provide business advice.   

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Disclaimer: The information provided in this Trade Article or Blog reflects regulatory provisions as understood at the time of publication. However, regulations, administrative rules, and laws may change over time. It is essential to verify all requirements with the appropriate regulatory agencies or licensing authorities to ensure compliance with the most current standards. This article is for informational purposes only and should not be considered legal or regulatory advice. Always consult official sources or regulatory representatives for the latest updates.

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