How to Start an Adult Foster Care Business

Starting an adult foster care business can be an exciting and rewarding business venture for entrepreneurs who are passionate about providing personalized care and improving the quality of life for others.

Having said that, you should keep in mind that launching a successful adult foster care business requires careful planning, significant investment, and a wide range of skills.

In this comprehensive guide, we’ll walk you through all the essential steps you’ll need to take to start your own adult foster care business, from creating a business plan and securing funding to hiring qualified staff and obtaining the right licenses.

Ready to turn your business idea into a reality? We recommend forming an LLC as it is the most affordable way to protect your personal assets. You can do this yourself or with our trusted partner for a small fee.

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Industry Overview

According to the U.S. Census Bureau, the number of adults aged 65 and over is projected to nearly double from 52 million in 2018 to 95 million by 2060. As the size of the elderly population continues to grow, so too will the demand for long-term care options like adult foster care.

This puts business owners who are considering starting their own adult foster care business in a very good position, especially given the fact that this form of long-term care is generally preferable since it offers a more personalized, homely environment for elderly individuals and those with disabilities.

The growing interest in community-based models for the elderly (e.g., adult foster care) is also supported by government programs such as Medicaid, which provides reimbursement for adult foster care services in many states through waiver programs.

As the population continues to age and preferences shift toward home-based care, starting an adult foster care business will become an increasingly lucrative and rewarding opportunity.

Startup Costs

If you’re considering whether an adult foster care business is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own adult foster care business?

Well, it depends. The initial investment for an adult foster care business varies widely based on factors such as the location of the home, the number of residents you plan to accommodate, and how many renovations needs:

• Property Acquisition or Leasing: One of the largest upfront expenses is securing a home that meets the necessary licensing and safety standards for an adult foster care facility — regardless of whether you’re purchasing or leasing. While property costs will vary significantly based on location, in many cases you can expect to pay between $1,500 and $5,000 per month to lease a home and between $250,000 to $500,000 to buy one.
• Renovations and Safety Modifications: Once you have a property that’s suitable for your needs, you’ll likely need to make a few renovations to ensure it complies with state safety regulations for an adult foster care facility — such as installing ramps, widening doorways, and adding fire safety equipment like sprinklers and smoke detectors. These modifications typically range from $10,000 to $30,000, depending on the extent of work required and local building codes.
• Licensing, Permits, and Insurance: In order to legally operate your adult foster care business, you’ll be required to obtain a number of different licenses and permits (see Step 7), which can easily cost between $500 and $2,000 depending on your state. On top of these licensing requirements, there are also certain types of insurance you’ll need to obtain in order to protect yourself against potential lawsuits and comply with state and federal law. Depending on the coverage you select, these policies can cost around $1,000 to $5,000 annually.

By carefully planning for these startup costs, you can ensure that your adult foster care business is well-prepared for a successful launch while minimizing unexpected financial challenges.

Ongoing Costs

Running an adult foster care business comes with several ongoing expenses that need to be managed to maintain a smooth operation, including:

• Staff Salaries and Benefits: Caregivers are essential to the success of an adult foster care business and their wages will form a significant part of your ongoing expenses. Depending on your state and the level of care provided, caregiver salaries typically range from $25,000 to $45,000 annually per staff member — though your overall staffing costs will likely be higher than this so that you can provide benefits such as health insurance and workers’ compensation insurance.
• Utilities and Maintenance: Operating an adult foster care business will require regular payments for utilities such as electricity, water, heating, and internet services — typically between $500 and $1,500 per month depending on the size of the home and the region. Similarly, you’ll also be required to pay for regular maintenance of the property (e.g., routine repairs, cleaning, and landscaping) to ensure it continues to meet safety standards. Depending on the size and condition of your adult foster care home, this can vary between an additional $300 to $1,000 per month.
• Medical Supplies and Food: Finally, in order to continue providing residents with the quality care they require, you’ll need to regularly dedicate a portion of your income toward medical supplies, such as medications, mobility aids, and personal hygiene items. The exact amount you spend will depend on the health needs of your residents, but it should generally range from $200 to $500 per resident, per month. On top of this, remember that you’ll also need to budget for food and dietary needs, which will typically add another $200 to $400 to your monthly costs.

Being aware of and planning for these ongoing expenses is the best way to ensure your adult foster care business continues to provide high-quality care for your residents smoothly and efficiently.

Earning Potential

Most adult foster care homes house between one and five residents, with each paying a monthly fee that includes rent, utilities, and caregiver services — this is the primary way in which your business would make money.

In terms of pricing, adult foster care businesses will generally charge each resident between $1,500 and $3,500 per month, though the exact amount you can charge depends heavily on your location and the level of care provided.

For example, facilities in urban areas or regions with a higher cost of living can command higher rates, while more rural areas may need to keep prices on the lower end of this scale. For this reason, it’s important to research similar facilities in your local area when planning your business (see Step 1) to get an idea of what rates are competitive and sustainable in your region.

Even in spite of the high ongoing costs associated with them, the potential profit margins for adult foster care businesses can be strong — particularly when a healthy balance is struck between operational expenses and the fees charged to residents.

For example, if you have four residents paying $3,000 per month, your gross income would be $12,000 per month. After covering expenses (which may equate up to between $6,000 and $8,000 per month), many owners find there is room for a comfortable profit, especially if the business is run efficiently.

If you’re looking to further increase profitability, consider offering additional services or amenities that residents can opt into for an extra fee (e.g., art classes, language lessons, or wellness programs). These not only serve as additional revenue streams but can also improve the quality of life for residents too.

8 Steps to Starting an Adult Foster Care Business

In order to start an adult foster care business, you’ll need to complete the following steps:

1. Planning Your Adult Foster Care Business
2. Registering Your Business
3. Setting Up Your Taxes
4. Securing Funding (If Applicable)
5. Finding a Suitable Property
6. Hiring Qualified Staff
7. Getting all Applicable Licenses and Permits
8. Obtaining Business Insurance

We’ve broken each one of these down in more detail below.

Still exploring your options? Check out other small business ideas.

Step 1: Plan Your Adult Foster Care Business

Before diving into your adult foster care business, you’ll need to spend some time conducting thorough market research.

This can involve analyzing the local market to understand the demand for adult foster care services, identifying potential competitors, and assessing the target demographic.

This will help you evaluate the financial viability of your project — including projected revenues and expenses — as well as determine the best location for your business.

Finding a Suitable Name

Choosing the right business name is both important and challenging.

Your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.

If you don’t already have a name in mind and need help, you can visit our How to Name a Business guide or use our Adult Foster Care Business Name Generator tool.

If you do have a name in mind, we recommend researching the following to confirm it’s available:

• Your state’s business records
• Federal and state trademark records
• Social media platforms

You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.

Note: If you’re planning to operate a sole proprietorship, you might want to operate under a business name other than your own name — known as a “Doing Business As” (DBA) name. Keep in mind that this is not recommended for an adult foster care business.me before someone else does.

Create a Business Plan

Creating a solid business plan is essential for outlining the structure, goals, and financial projections of your adult foster care business, which will help to ensure long-term success and guide decision-making as you grow.

In particular, make sure to focus on identifying the following key areas when creating your business plan:

• Which specific services you’ll provide
• Your pricing structure
• Who your target market is
• How many competitors there are in the local area

While they may all seem to do similar things, adult foster care businesses can offer a wide variety of different types of care — whether this is specialized care for the elderly, adults with disabilities, or individuals recovering from long-term illness or injury who just need assistance with daily activities.

On top of this, these homes will also vary in the level of care they provide too, ranging from basic assistance with daily activities to more intensive medical care. If you’re unsure where to begin when deciding which type of services to offer, try to let your decision-making be guided by the demand for adult foster care in your area, paying particular attention to the demographic trends driving demand.

For example, in an area with an aging population, your business would likely be far more profitable offering intensive, full-time care for the elderly. However, in an area with a younger demographic, you may find greater success by tailoring your services to support individuals with mobility issues, cognitive impairments, or other specialized needs.

On a more general level, it’s also important to keep in mind what exactly makes an adult foster care business attractive when compared to other long-term care options: size and cost.

Since adult foster care homes typically house fewer residents — usually between one to five people — it creates a more intimate, home-like environment. In contrast, care homes (like nursing homes or assisted living facilities) often accommodate many more residents and may have a more institutional feel.

Similarly, adult foster care is generally more affordable than care homes, as it offers fewer specialized medical services. Leaning into both of these qualities when making decisions regarding pricing, staffing, and which services to offer will result in far greater success in appealing to your target clientele.

Step 2: Register Your Business

One crucial aspect that cannot be overlooked when starting your adult foster care business is the importance of establishing a solid business foundation.

While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs — especially when it comes to adult foster care businesses (with potential liabilities and debt).

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your adult foster care business were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

Note: If you’re interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).

Step 3: Set Up Your Taxes

The next step you’ll need to take is to register your business for taxes. To this, you’ll need to obtain an Employer Identification Number (EIN), which you can think of as your business’s Social Security Number.

If you form your LLC through a specialized LLC formation service, this will likely be already handled for you in exchange for a small additional fee.

Even so, it’s important to make sure that you fully understand your business’s tax obligations; since these can depend on your location, it’s a bit difficult to accurately break down exactly which taxes you’ll be subject to.

Nevertheless, most businesses will typically be subject to income tax, sales tax, and employment taxes at the federal level. Adult foster care businesses in particular will also likely be faced with payroll taxes, as well as some form of local city or county taxes, depending on your location.

Due to the complex nature of business taxes, we always advise our readers to seek the help of a professional accountant or business attorney for this step.

Recommended: Book a free consultation with our trusted partner, 1-800Accountant to potentially save both time and money.

Step 4: Secure Funding (If Applicable)

Securing funding is crucial for adult foster care businesses because it provides the necessary capital to cover initial startup expenses and ensure smooth operations during the early stages of your business.

Whether you choose a bank loan, SBA loan, private investors, or crowdfunding, opting for this funding ensures you have the resources needed to invest in high-quality equipment, attract clients through effective marketing, and can be a solid investment in your business’s long-term success.

Ultimately, the type of financing you choose should align with your specific financial situation and business plan, allowing you to manage cash flow effectively as your business grows.

Step 5: Find a Suitable Property

When starting an adult foster care home, selecting the right property is crucial for both the comfort of your residents and the success of your business.

We recommend selecting a property that ticks as many of the following boxes as possible:

• Adequate space
• Located in a safe neighborhood
• Accessible to wheelchairs
• Meets local and state safety standards

Whether you choose to purchase or lease a home, ensuring it’s spacious enough to accommodate the number of residents you plan to serve — which will typically be between one and five individuals — is perhaps the most important factor.

For an adult foster care home, an appropriate property size will typically fall somewhere between 2,000 and 4,000 square feet — this should be enough to accommodate a comfortable bedroom for each resident, spacious communal spaces (e.g., living rooms, dining areas, and recreation rooms), and plenty of bathrooms.

In particular, you should ideally be looking to find a property that’s located in a safe neighborhood and close to essential services such as hospitals, pharmacies, and grocery stores to ensure easy access to medical care and supplies.

This will be highly beneficial for your business since a safe neighborhood provides peace of mind for family members, caregivers, and residents — many of whom may be elderly or have disabilities, which makes feeling safe in their surroundings an important consideration.

Once you’ve found a property that you’re satisfied with, you’ll likely need to make some renovations to it in order to meet the safety and accessibility standards mandated for adult foster care homes.

This may involve installing ramps for wheelchair accessibility, widening doorways, and adding safety features like handrails, non-slip flooring, and fire alarms.

Step 6: Hire Qualified Staff

Hiring qualified and compassionate caregivers is another vital factor to the success of your adult foster care business as the individuals you hire will form the heart of your operation — ensuring the safety, well-being, and comfort of your residents.

Before you go ahead and hire any staff, it’s essential to research your state’s regulations regarding caregivers, as it’s very common for them to be mandated to meet specific educational or certification standards (e.g., becoming a Certified Nursing Assistant or having first aid training).

In addition to meeting certification requirements, many states also obligate thorough background checks for all caregivers and staff working in an adult foster care home. Alongside providing a safe environment for your residents and ensuring your adult foster care home is legally compliant, checking that all employees pass these background screenings will also help protect your business from liability issues.

Another important factor to consider when hiring is the staffing ratios set by state licensing agencies for caregivers. While not always the case, it’s very common for states to require a specific caregiver-to-resident ratio — which is designed to ensure that each resident receives adequate attention and care.

As such, depending on your state’s regulations and the level of care your residents need, you may need to adjust your staffing levels in order to meet these standards.

Step 7: Secure All Necessary Permits and Licenses

One of the final steps you’ll need to take before you can officially launch your adult foster care business is to obtain a number of different licenses and permits that are commonly required by law.

Adult Foster Care License

This license — which goes by a number of different names (e.g., “Homes for the Aged License” in Michigan) — is the certification that’s required to be able to operate a home providing care and assistance to adults who cannot live independently.

Put simply, this license ensures that your facility is compliant with your state’s specific regulations regarding safety, staffing, resident care, and overall management.

Each state has its own licensing body, often under the Department of Health and Human Services, and applicants must submit detailed information about their facility, undergo inspections, and pay fees to obtain the license.

Health Department Permit

A health department permit is required to ensure that your adult foster care home maintains a clean and healthy environment for its residents in line with the local regulations for health and sanitation.

Among others, you’ll primarily need to demonstrate the following in order to obtain this permit:

• Regular sanitation and cleanliness standards for common areas, bathrooms, and bedrooms
• Proper food handling and storage practices to prevent foodborne illnesses
• Hygiene and infection control measures, particularly if medical care or assistance with personal hygiene is provided to residents

The local health department will conduct routine inspections to ensure compliance with these standards, and any violations can result in fines or temporary closure until you address these issues.

Food Handling Permit

This permit is designed to ensure that the kitchen staff in any facility that prepares and serves food is properly trained in safe food handling practices to minimize the risk of foodborne illnesses.

Food handling permits are typically issued by the local health department, and commonly need to be renewed annually or biannually, depending on the jurisdiction.

By ensuring compliance with these key permits and licenses, you can protect your residents and staff while meeting legal obligations and maintaining the trust of the families who choose your care services.

Step 8: Get Business Insurance

In addition to securing the necessary permits and licenses, you will need to obtain the right business insurance.

Note

Even if you form an LLC, purchasing business insurance is still a good idea. This is because an LLC structure protects your personal assets, not your business’s.

While specific coverage needs may vary based on factors such as location, size, and unique risks, there are several key types of insurance that most adult foster care businesses should consider.

We’ve briefly outlined these below.

General Liability Insurance

General liability insurance is a foundational coverage that’s essential for adult foster care businesses because it protects against claims of bodily injury, property damage, and personal injury that may be caused during the course of daily operations.

An example of this might be if a resident is injured after tripping over an electrical cord or a caregiver accidentally breaks a resident’s belongings — in either of these cases, general liability insurance would cover the costs.

The average cost for general liability insurance according to recent data is between $50 and $200 per month, though costs can vary based on your business’s specific needs and risks.

Property Insurance

Property insurance is essential for safeguarding your adult foster care business’s physical assets, such as its mowers, trimmers, and blowers.

The median cost for business property insurance is approximately $75 and $200 per month.

Having said that, rates can vary significantly based on factors such as your business’s location, risk profile, and the value of the property in question.

Errors and Omissions Insurance

Errors and Omissions (E&O) insurance — which may also be referred to as professional liability insurance — provides coverage against claims arising from professional mistakes, negligence, or failure to meet certain standards of care.

In the context of an adult foster care home, this type of insurance is essential as it helps to protect the business and caregivers from lawsuits related to the quality of care provided to residents.

The cost of E&O insurance for adult foster care homes usually ranges from $75 to $300 per month, though this estimation can vary depending on your business’s individual situation.

Workers’ Compensation Insurance

If your adult foster care business will have employees, workers’ compensation insurance is likely going to be a legal requirement depending on your state.

This insurance policy provides coverage for medical expenses and lost wages to employees who are injured during work.

The average cost of workers’ compensation insurance ranges between $100 and $300 per month, but this can vary based on factors such as payroll, location, and (once again) your business’s specific risk profile.

Ready to Get Started?

How to Start an Adult Foster Care Business FAQs

Who is the target market?

Adult foster care is the ideal solution for people who don’t have severe enough needs for a nursing home, but who need someone to watch over them and help with daily tasks.

The target demographic is stereotypically older people in relatively good health. However, owners can also consider opening up residential facilities for people of any age who have minor physical or mental disabilities.

How much can you charge customers?

The monthly rate for adult foster care typically ranges from $1,500 to $3,500 per resident, depending on factors like location, level of care, and additional services offered.

Facilities in urban areas or those offering more intensive medical care may charge higher rates. It’s essential to research local market rates before setting your fees to remain competitive.

How much profit can an adult foster care business make?

On average, profit margins can range from 15% to 30% after covering expenses such as staff salaries, utilities, and supplies.

With monthly fees ranging between $1,500 and $3,500 per resident, a facility with four residents could generate between $6,000 and $14,000 in revenue per month, potentially resulting in a profit of $900 to $4,200 per month after expenses.

How can you make your business more profitable?

To make your adult foster care business more profitable, consider offering optional paid services or activities like art classes, fitness programs, or language lessons, which can enhance the resident experience.

Additionally, expanding by opening and managing multiple care homes can help increase revenue while spreading operational costs across several locations, boosting overall profitability.