In this guide
- What to ask for alongside the statement before you read a line of it
- How to test whether the revenue on the page repeats next month
- The expense lines understated on almost every seller-prepared P&L
- The costs missing from the page entirely
- How to restate the statement, and what to do when it fights the tax return
Key takeaways
- A seller-prepared P&L is an argument, not a record. It was built to support a price; verify it against source documents.
- Revenue quality beats revenue size. A month propped up by a respite stay or a move-in fee is not a run rate.
- Four lines are understated on nearly every care home statement: management, workers' compensation, food, and repairs.
- Replacement reserve is almost never on the page, yet roofs, HVAC and flooring fail on a schedule.
- The census, payroll register, and resident roster are the real statement. The P&L only summarises them.
What should you ask for alongside the P&L?
Never underwrite a summary in isolation — ask for the three documents the summary is built from.
The first is census by month, ideally 24 to 36 months, showing occupied beds at month end and the rate each resident paid. It is the most useful document in the file and the one sellers are slowest to send.
The second is the payroll register — every employee, hours, gross wages, pay period, not a wage summary. That is where you find the owner's daughter on payroll, or two caregivers who left in March and were never replaced because the owner covers nights.
The third is a resident roster with move-in dates, rate, care level, payer source, and concessions. Beside the census it shows whether rates rise or whether long-tenured residents sit frozen at four-year-old rates.
Ask also for tax returns, bank statements, the staffing schedule, and recent survey reports. The documents a prepared seller should have are not exotic, and refusing them under an NDA is itself an answer.
Is the revenue on this statement actually recurring?
Test every revenue line for whether it repeats, and at what rate.
Care home revenue hides one-time income. Community and move-in fees do not recur and belong out of the run rate even though they are real cash. Respite revenue can make a month look strong and vanish the next.
Then check the mix. Private-pay revenue and reimbursement revenue are not the same asset, because one can be repriced and the other largely cannot; payer mix changes what the income is worth and how a lender reads it.
Finally, if revenue grew on flat census, growth came from rate increases. Ask when the last one was and whether anyone moved out over it.
Which expense lines are usually understated?
Management, workers' compensation, food, and repairs are the four a working owner routinely reports below true cost.
Management. If the owner runs the building there is often no management line at all. You will pay an administrator or do the job yourself, so a market cost belongs in the stack — commonly a percentage of revenue with a dollar floor, since a percentage of a small base hires no one.
Workers' compensation. Care work is a high-rate classification in most states. If the line looks small next to payroll, ask for the policy declarations page and the experience modifier, not a spreadsheet figure.
Food. Divide the annual food line by resident-days. An implausibly low per-resident-per-day figure means the owner shops personally without counting their time, or groceries run through a personal account.
Repairs. Near-zero maintenance on a thirty-year-old house is deferred work, not efficiency, and it reappears in your first-year capital budget.
What is missing from the statement entirely?
Look for absence, not just for wrong numbers.
A replacement reserve is the usual omission. Roof, HVAC, water heaters, flooring, kitchen equipment — these fail whether or not a given year shows the spend, so underwrite a reserve per bed even though the seller shows none.
Then look for personal spending run through the business: it inflates costs and gets added back, legitimately when documented. Worse is the reverse — an owner buying supplies out of pocket, so real cost is understated. Sorting genuine add-backs from wishful ones is where most valuation disputes live.
Check too for missing liability and professional insurance, licensing and survey costs, accounting fees, and marketing spend.
How do you restate it into something you can underwrite?
Rebuild the P&L line by line at the costs a third-party operator would actually incur.
Work in columns beside the seller's: their figure, your adjustment, your figure, the source. Take revenue down for one-time items, payroll up to fill unstaffed shifts, add management and reserve, correct insurance to a real quote, normalize food and utilities.
Building the resulting operating number is covered in how to calculate NOI; this piece is about interrogating someone else's arithmetic first.
Expect your figure to land below the seller's. That gap is the negotiation, and an adjustment you can source persuades far better than a lower offer with no explanation.
What if the P&L and the tax return disagree?
Ask which one is wrong, and get the answer in writing.
Timing, depreciation and reclassification explain small gaps; large ones are different. When a seller says the return understates income "because of how my accountant did it," you are being asked to pay for income nobody reported — and lenders underwrite the return, not the story. Reconcile deposits against revenue for three sample months, and if they do not tie, resolve it before paying for the rest of your due diligence.
Want a second read on the statement in front of you?
Reading a care home P&L is a learned skill, and the first one you read should not be the one you buy. An agent who works this asset class daily knows where these statements go quiet.
Get matched with a Buy Sell Assisted Living expert before you write the offer.
Informational only — not financial, investment, legal, or tax advice. Wage costs, insurance rates, reimbursement levels, and licensing rules are state-specific and change; verify figures with qualified professionals in the state where the home operates.