Industry Sector: Care Home

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1 Industry Sector: Care Home Introduction You have decided that you want to run a care home - now decide how you will achieve this. Will you: buy an existing business start up a new business from scratch - either by buying and converting a suitable building or by building your own The course of action you choose will affect the costs you will incur and may also affect how soon you start to receive income from the venture. This Business Guide will help you to complete your cash flow. The topics listed under Income and Expenditure relate to fields in the cash flow section of the Business Plan. Cash sales 'Cash sales' means all income from your main business activity which is received at the time of sale. In a care home, this means all income received from residents who pay their weekly, monthly or quarterly fees in advance. It also includes any payments you receive at the time of provision for 'extras' that you provide for residents, for example special outings and so on. Your fee income will probably come from two main sources: private funds (residents who pay for some or all of their own care) state funds (residents who are paid for in part or in full by their local authority or the NHS) In some cases, it might be the resident's family who actually pays you, or possibly a charity or insurance company. It is up to you to decide whether residents will be required to pay in advance or in arrear. It is usual to ask for fees to be paid in advance. Although many local authorities will stick to your payment terms, some prefer to use their own payment schedules whether you like it or not! This might mean that some of the fees you receive from them are paid in arrears - this is treated as 'Cash from debtors'. It would be unusual to receive much payment in cash. Most of your residents will pay you in one of the following ways: standing order, direct debit or bank transfer cheque debit or credit card, if you accept these To prepare your cash flow, you will need to estimate how much fee income you will receive over the next twelve months, and when you will receive it. To do this you will have to decide

2 what your fee rate will be and how many residents you will be able to accommodate at any one time. You will then need to make an estimate of how many of your places will actually be full at any given time - this is your average occupancy level. When setting your fees and making your estimates, bear in mind the following: you should ascertain at an early stage how many residents you will be able to accommodate. About 20 places would be typical for a privately owned residential home, about double this for a private nursing home there are standards for new care homes governing minimum room size and setting limits on the number of shared rooms - base your planning on all bedrooms being at least 12 square metres in size plus ensuite facilities, and allow at least 4.1 square metres of communal space (excluding corridors and entrance halls) per resident set your fees at a fair and realistic level. The care home sector is highly competitive and you will need to be sure that your fees are comparable with those charged by other homes in the area which offer a similar level of care and quality local authorities set their own maximum amounts that they will pay towards supported residents' fees. Many residents will not be able to afford to top this up. If local authority rates are lower than your fees, you must decide whether you will accept residents with no top-up local authority funded residents might typically make up around 50% to 75% of your total, but this could easily rise much higher if you are not located in an affluent area occupancy levels can be affected by very many different factors, such as the number of other homes in your area and the types of service that you offer. If your cash flow is not viable at a projected 85% average occupancy level then you may need to rethink Doing some market research will help you to make your estimates as accurate as possible. To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow Buy an existing business Opening a new care home can mean building it from scratch. Alternatively, if an existing building - for example a large old house or hotel - is to be used, it will generally be necessary to completely gut it and carry out extensive conversion and refurbishment work. This can give you the opportunity to make sure that your new care home includes the latest facilities, meets the latest standards, runs as efficiently as possible and is highly attractive to would-be residents. However, new build or an extensive refurbishment is generally a costly option. You might decide to buy an existing care home business rather than start your own venture from scratch. Buying a going concern can mean that: the premises and equipment are already in place there are established residents the business can generate income immediately suppliers have been identified and relationships established with them

3 the business has a track record which can help if you are looking for finance staff may already be in place more relaxed statutory minimum standards may apply to certain physical and environmental aspects of the premises However, look critically at any care home business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up. Look out for businesses where the current owner just can't earn enough in fees to cover costs and make a reasonable profit - you may be confident that you can improve the performance of the business, but make sure you know exactly what you're taking on. Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high. Other matters to consider include: the state and value of the premises, equipment and so on. Will you have to spend money refurbishing or replacing assets existing staff rights levels of staff training and qualifications how to retain key personnel once you've taken over does the business owe money that you will be responsible for the reputation of the home and its performance in recent inspections (including inspections by the care regulator and food hygiene inspections) whether there are any outstanding actions, enforcement orders, unsettled disputes or litigation current and historic occupancy levels - do these appear unusually low and are they rising or falling Unlike many other types of business, buying a care home very often involves acquiring the building itself (freehold or on a long-term lease). This may well include accommodation for you and your family, so you could be combining a business purchase with a house move - giving you plenty more to think about! Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs. Market research How much competition is there? Other care homes

4 Your main competitors are, broadly, other care homes within your local authority area and, specifically, other local care homes that offer a similar level of quality and service to your own. Look through the Yellow Pages and other local directories for residential and retirement homes, nursing homes and convalescent homes. Make notes about the range of services that they offer - many will include details in their advertisement. Go and look at some of the homes in your area - are they upmarket and exclusive, smart and pleasant, or perhaps shabby and run down? Don't ignore homes that offer a narrower range of services than your own - at times when funds are tight, local authorities may try to save money by opting wherever possible to provide the lowest acceptable level of care. Find out about any homes that are owned by the local authority or by a charitable organisation - it may be the case that these are favoured by the local authority because they are considered to offer better value. Look out too for homes in your area owned by major companies - these are usually large and very efficiently run. Try to find out whether your local authority has an 'approved providers' list - if it does, consider taking steps to get your home on it. Use the Record Sheet to help you with this aspect of your market research. Domiciliary care services Domiciliary care is an alternative to looking after elderly, infirm or otherwise vulnerable people in a care home. Special businesses exist to provide in-home care for such people. In some cases, existing care home businesses have branched into this area of the market. Fees are normally lower than in a care home and domiciliary care can, where appropriate, offer an attractive alternative to local authorities and private individuals looking for the best value option. Try to find out about domiciliary care provision in your region. It may be that your local authority appears to favour this approach. You could look into offering this type of service yourself. Clients Depending on the type of services that you offer, your residents might be elderly people, people with learning difficulties, people with physical disabilities or possibly those suffering from a specific illness. Although your residents may come from anywhere in the country, many will be people from within your region. Find out about the local population to help you make sure that your nursing home meets local demand. Local authority funding is means tested - is yours a wealthy area, where many people are likely to have savings or insurance policies with which to pay your fees? Or are most people likely to be eligible for state funding?

5 Sector trends How the industry has performed? The residential and nursing care sectors enjoyed huge growth during the 1980s and much of the 1990s as the number of elderly people needing care rose. Growth was also encouraged by changes in the way residential and nursing care were provided. Public sector provision declined during this period, while the private sector expanded to meet demand. As the care sector became big business it attracted some very large companies, which built, bought out or leased whole chains of homes across the country. Care homes got bigger as businesses sought ways to improve their economies of scale and increase their profits. The number of elderly people continues to rise and demand for care is still on the increase, but this is itself becoming something of a problem for the industry. As local authorities' financial resources have become more stretched they have looked for ways of reducing the cost of care provision. Some have turned to domiciliary care (looking after people in their own homes), while most have imposed stringent limits on the amount they will pay for residential and nursing care. Privately funded individuals too are finding it more and more difficult to meet the cost of care. The housing market slump which began in 2008 caused extra funding problems for care homes. Many elderly people fund their care home fees by selling their house. But falling house prices and a very flat market made this much harder during the late 2000s and early 2010s, limiting the amount they had to spend on fees. High inflation didn't help, forcing care homes to put up their fees to keep up with the rising cost of things like food and energy. Important events The 1990s saw much criticism of the way in which some care home businesses seemed to put profit before the well-being of their residents. National Minimum Standards for Care Homes were phased in during the early 2000s with the aim of safeguarding residents' well-being and dignity, overseen by a government watchdog. However, these standards led to even higher costs for many care homes. The government is currently planning to introduce a 'TripAdvisor style' consumer rating website for the care home industry. In the early 2000s the government reformed the provision of care for the elderly. The cost of nursing care required by residents in care homes is now met by the NHS up to certain set limits. The cost of personal care (for example help with washing and dressing) and 'hotel costs' (meals and accommodation) is still met by the individual if he or she does not qualify for means tested funding (except in Scotland, where the total cost of institutional care is met by the state up to a weekly limit). All elderly residents are allowed a fully funded three month stay in a care home before being means tested. In 2005 the Office of Fair Trading published a report on the care home industry in which it said that care homes should give clearer information about their fees and avoid hidden charges. The report also called for the provision of more and better information about fees

6 and charges for elderly people. The mid and late 2000s saw the industry receive further criticism for the quality of care it provides, particularly over the use and administration of medication and the quality of care staff. The 2000s saw several initiatives aimed at ensuring quality standards in care homes, including: the introduction by the Commission for Social Care Inspection (CSCI) in 2007 of a compulsory annual quality self-assessment scheme for care providers like care homes in England the setting up of the General Social Care Council (GSCC) to improve standards among care workers the phasing in of a requirement for care workers in England, Wales and Northern Ireland to be vetted by and registered with the Independent Safeguarding Authority (ISA) under the vetting and barring scheme (a separate but aligned scheme applies in Scotland) - although note that the registration element of the ISA scheme has been halted for the moment the launch of the Care Quality Commission (CQC) in April 2009 to replace the CSCI changes to the way in which care providers in England are regulated, which were introduced in October The changes saw the registration requirement change from applying to specific types of organisation to applying to specific regulated activities, and a new set of outcome-based 'essential standards' for care providers was also introduced In 2010 the government began considering options for funding long term care of the elderly in the future. The options under consideration include a voluntary (or compulsory) insurance scheme, new taxes, and a one-off compulsory levy. However, it may be the case that planned reforms don't actually come into effect for another decade or more, particularly if the economy remains in crisis for some years to come. Keeping up with developments Joining a trade association is a good way of keeping up with developments in the industry. Organisations like the Registered Nursing Home Association (RNHA) and the National Care Association (NCA) represent independent residential care providers in the UK. You can find out more about membership of these organisations on their websites. Subscribing to an industry journal or newsletter is another excellent way of staying up to date. Journals like Caring Times and Community Care Market News are full of useful topical articles and features for the care home industry. Industry specialists Laing & Buisson, who publish Community Care Market News, also publish a range of detailed industry reports. Setting the fee level The care home sector is very competitive and it is important to set your fees at the right level. Nursing home fees are normally around 200 a week higher than residential home fees, reflecting the higher level of care that they provide. Your fees should reflect the standard and quality of the care and the facilities that your home offers. Three important factors to consider when setting your fees are:

7 the amount that you will need to charge to cover all of your operating costs and make an acceptable profit margin the going rate in your area for the type of services that you will be offering the maximum amount the local authority will pay towards residential and nursing care for elderly people Try to find out what other care homes in your area charge. Compare their facilities and quality standards with those that you intend to offer. Find out what is included in their charges - and what isn't. In many cases, the going rate will be the maximum amount that the local authority pays for particular levels of care. Try to find out what your local authority's fee limits are - contact the care homes section of your local social services department. Many local authorities publish this information on their website. You may decide to set your own fees at a level close to or below the local authority maximum. It is important to do this if you anticipate that a large percentage of your clients will be state funded. In a typical 'middle of the road' home charging an average fee, at least 50% of residents would normally be state funded. Remember that local authorities who are purchasing care on a resident's behalf are obliged by law to obtain 'best value'. However, if you think that there is a demand for a more upmarket service from clients who can afford to top-up state funding or pay their own fees, you may decide to ignore these limits. Alternatively, you might decide to charge a higher fee, but to accept state funded clients at a lower rate. Make sure your fees are set out as clearly as possible so that residents understand exactly how much their care will cost them. Avoid bumping up bills unfairly with hidden extras. When fees have to go up, make sure that your residents know about the rise as soon as possible and understand the financial implications. The Office of Fair Trading (OFT) published a report on care home fees in the mid 2000s that recommended greater clarity, simpler fee structures and more information about fees for elderly people. Occupancy The percentage of the total number of places that are occupied at any one time is referred to as the occupancy rate. So if you have ten beds and nine residents in your care home, then your bed occupancy rate is 90% (it's most usual to talk in terms of bed occupancy in a care home, but sometimes room occupancy might be looked at too). Occupancy will probably fluctuate a bit and it's usual to look at occupancy as an average over a given period, often a year. You will need to estimate what your average occupancy rate will be during the first year of business so that you can forecast your income for the cash flow. It is realistic to expect that your occupancy rate will initially be quite low. You will hope to increase your occupancy fairly quickly as your new business becomes established. It may be that some people have already put their names down to enter your home when it opens; if so, use this as a starting point for estimating occupancy.

8 Your occupancy rate may be affected by the type of care home that you open. For example, if you decide to target a specialist niche market for which you have identified strong demand, you might expect your occupancy to be higher than in, say, a middle of the road care home for the elderly. As a very rough guide, if your income estimates for the first year in business (possibly excluding the first month) are based on projected average occupancy of much more than 85% or so then it is possible that you will have to re-think some aspects of your business plan. Remember that occupancy can be affected by a number of different factors, including: the reputation established by your home the fees that you charge the amount of local competition the approach adopted by your local authority towards care provision regional location; average occupancy is higher in some areas of the UK than in others any legislative changes which affect either the amount of public funding available to care home residents, or the way in which local authorities are required to meet their obligation to provide care Find out whether your local authority publishes any statistics on care home occupancy in your area - if this information is available it could be very helpful for your financial planning. Services and quality standards offered Decide at an early stage in your planning what types of service you will offer. The first stage is to decide whether your care home will offer: just residential care residential care with nursing You could also consider offering sheltered housing or assisted living. Your choice will affect the level of fees that you charge, the amount and type of equipment and staff that you will need and also your start up and operating costs. There are other areas that you might consider besides caring for the elderly. Specialist care sectors include people with learning difficulties, people with a severe physical disability and sufferers of a particular illness (for example Alzheimer's). Domiciliary care (looking after people in their own homes) is an area of the care sector that is currently receiving a lot of attention. Some care home businesses have already diversified into this market. Think about the range of services that will be available to residents in your care home. Some of these may earn extra fees for your business. You might, for example, install facilities for: private medical treatment

9 intensive nursing care physiotherapy Decide what level of quality and service your residents will receive as standard. Things to consider include: bedroom sizes, and the level and standard of furnishings and equipment (for example a microwave oven, refrigerator, telephone and so on) the provision of essential services, for example hairdressing and chiropody the number and nature of communal rooms; these might, for example, include a bar, separate television lounge, library and so on recreation and entertainment; this might include regular outings and on-site events other facilities that you will offer; for example, will residents have easy access to specially designed areas of the garden? Bear in mind that in some regions of the UK certain minimum accommodation standards, for example regarding minimum bedroom size, are required by law for new care homes under the statutory minimum care standards. (Other minimum standards - 'essential standards' in England - apply to all care homes - old and new.) These are monitored by the Care Quality Commission (CQC) in England, the Regulation and Quality Improvement Authority in Northern Ireland, Social Care and Social Work Improvement Scotland (SCSWIS - usually referred to as the Care Inspectorate), and the Care and Social Services Inspectorate Wales (CSSIW). As well as having periodic inspections to make sure that they are meeting minimum standards, care homes in England must complete an annual quality self-assessment exercise. Care home managers are required to monitor the quality of the service continuously. You should take into account both the level of care and the standard of facilities that you offer when you set your fee level. While many care homes offer high quality care, a few well publicised examples of neglect and even abuse tarnish the image of the industry, which regularly faces criticism over quality standards. Make sure that all your staff understand the importance of maintaining a happy, caring atmosphere in the home. Remember that even small things can make a difference to residents - for example, mealtimes will be the highlight of the day for many.