The care home market has developed significantly in the past 10 to 20 years. It is no longer a cottage industry but a vibrant, growing market that despite the current economic downturn still creates a lot of interest from investors. Whilst there has been a good deal of consolidation at regional and national levels many opportunities exist for new entrants to the market.
By carefully considering some of these ‘tips’ prospective purchasers should find themselves in a stronger position when liaising with banks and brokers for funding.
So, you find a care home you are considering buying. Consider the following...
1. Competition
Investigate how many homes there are in the local and regional areas. Make enquiries with the planning authority – are there any new homes are due to be built or is planning permission in place for local units to be extended? Both these factors may have an impact on the future trade and viability of your proposed purchase.
2. Location and demographics
Be aware of the local demographics. What is the level of bed provision already in that local? What is the local authority’s attitude towards care home placements and domiciliary care? Are there vacancies in other local care homes?
Rural homes may find it difficult to recruit staff, and public transport may be an issue. Consider visiting the home at different times on various days.
3. Experience
Do you have the relevant business background to operate a care home? If not, research courses or seminars are available to expand your knowledge. Consider purchasing a home that has a registered manager already in place. Do you need additional management support in the initial months?
4. Regulation and Legislation
The long term care sector is one of the most regulated sectors in which to operate in the UK.
The regional governing bodies (i.e. Care Quality Commission) can give advice on the different types of registration, inspection formats and the issued guidelines they expect care homes to adhere to.
Read and consult regarding the care home’s latest inspection report.
Useful links:
Care Quality Commission - England
Care Inspectorate - Scotland
Care and Social Services Inspectorate - Wales
Regulation and Quality Improvement Authority - Ireland
Familiarise yourself on how they operate and their powers.
5. Research
Be aware of the market’s increasing high expectations in terms of quality of facilities and the provision of care. To understand this, take a look at the Care Standards Act 2000 and its impact on existing care homes, new-build care homes and any proposed extensions.
Other useful Statues:- the Health and Social Care (Community Health and Standards) Act 2003.
6. Trading history
All buyers must consider a care home’s trading history. In the current environment obtaining funding is very difficult and many questions will be raised by banks. Request as much information as is available and liaise with professional advisors. If the accounts show a low occupancy in recent years – question why?
7. Valuation
Consult with your bank and ensure you engage a specialist valuer.
8. Cash
Consider how much cash you will need to make available up front. If you have no experience you will have to make available a significant percentage of the purchase price and in the current climate between 30-40% is becoming standard. Be aware that other forms of security may be required.
9. Staff costs
Expect these to be around 50% - 55% of the annual fee income for residential care homes, possibly slightly more for a nursing home or another specialist care facility.
10. Strategy
Any funding institution will want to see a three to five year strategy, full business plan, profit expectations and evidence of in-depth research to support the viability of your plans.
Following these tips a prospective purchaser should be well armed to make an informed decision about any proposed purchase.
The care home market has developed significantly in the past 10 to 20 years. It is no longer a cottage industry but a vibrant, growing market that despite the current economic downturn still creates a lot of interest from investors. Whilst there has been a good deal of consolidation at regional and national levels many opportunities exist for new entrants to the market.
By carefully considering some of these ‘tips’ prospective purchasers should find themselves in a stronger position when liaising with banks and brokers for funding.
So, you find a care home you are considering buying. Consider the following...
1. Competition
Investigate how many homes there are in the local and regional areas. Make enquiries with the planning authority – are there any new homes are due to be built or is planning permission in place for local units to be extended? Both these factors may have an impact on the future trade and viability of your proposed purchase.
2. Location and demographics
Be aware of the local demographics. What is the level of bed provision already in that local? What is the local authority’s attitude towards care home placements and domiciliary care? Are there vacancies in other local care homes?
Rural homes may find it difficult to recruit staff, and public transport may be an issue. Consider visiting the home at different times on various days.
3. Experience
Do you have the relevant business background to operate a care home? If not, research courses or seminars are available to expand your knowledge. Consider purchasing a home that has a registered manager already in place. Do you need additional management support in the initial months?
4. Regulation and Legislation
The long term care sector is one of the most regulated sectors in which to operate in the UK.
The regional governing bodies (i.e. Care Quality Commission) can give advice on the different types of registration, inspection formats and the issued guidelines they expect care homes to adhere to.
Read and consult regarding the care home’s latest inspection report.
Useful links:
Care Quality Commission - England
Care Inspectorate - Scotland
Care and Social Services Inspectorate - Wales
Regulation and Quality Improvement Authority - Ireland
Familiarise yourself on how they operate and their powers.
5. Research
Be aware of the market’s increasing high expectations in terms of quality of facilities and the provision of care. To understand this, take a look at the Care Standards Act 2000 and its impact on existing care homes, new-build care homes and any proposed extensions.
Other useful Statues:- the Health and Social Care (Community Health and Standards) Act 2003.
6. Trading history
All buyers must consider a care home’s trading history. In the current environment obtaining funding is very difficult and many questions will be raised by banks. Request as much information as is available and liaise with professional advisors. If the accounts show a low occupancy in recent years – question why?
7. Valuation
Consult with your bank and ensure you engage a specialist valuer.
8. Cash
Consider how much cash you will need to make available up front. If you have no experience you will have to make available a significant percentage of the purchase price and in the current climate between 30-40% is becoming standard. Be aware that other forms of security may be required.
9. Staff costs
Expect these to be around 50% - 55% of the annual fee income for residential care homes, possibly slightly more for a nursing home or another specialist care facility.
10. Strategy
Any funding institution will want to see a three to five year strategy, full business plan, profit expectations and evidence of in-depth research to support the viability of your plans.
Following these tips a prospective purchaser should be well armed to make an informed decision about any proposed purchase.