Yesterday, on April Fools Day of all days, as you no doubt know, the National Living Wage (NLW) increased again.
This means your wage bill, which probably amounts to over half your overall costs, will increase by at least 5% and probably more.
Are you ready for this rise? The financial health and stability is dependent on you knowing what to do next.
The increase in your overall wage bill will probably be greater than 5% because you will no doubt have more experienced staff and managers who you pay greater than the NLW and who will understandably expect the difference between their hourly rate or salary and those on the NLW hourly rate to be maintained.
What will this mean in monetary terms?
Let’s say you have a 40-bed home, with 28 care staff on the NLW of £7.83 working on 1008 care hours per week (based on 12-hour shifts). The increase will cost you £19,160 per annum, which includes annual holidays.
But then you will need to raise the pay of those more experienced members of your team, as I said.
And so based on the above numbers, (and for ease of calculation) you could be looking at around £20,000 per annum rise in your staff wage costs. Plus the extra costs of employing people on higher rates.
What is your average weekly fee? How many clients would you need in order to earn the extra income that you need because of this NLW rise?
Staying with these numbers, if your annual profit margin is say 20% then to earn an extra £20,000 profit a year, you need to generate an extra £100,000 in revenue. That means you need to earn an extra £1,923.07 a week.
Even if you return a healthy 30% profit margin, you would still need to earn an extra £66,667 a year, or an extra £1,282.06 a week, in fees.
Of course, your numbers will be different but I hope you see the challenge you face. So, what are you going to do? And the answer isn’t to increase your private client fees to compensate for your social services clients.
Well, first you need to figure out the real rise for you and figure out what that means in terms of your client fees.
Whatever, your figures come out at, are you ready for this rise?
Now, I hope you’re not expecting your local authorities to increase your fees to cover this rise. The last NLW rise was 8% and I’m pretty sure LAs didn’t match that.
In fact, councils are now sending out letters, outlining what increases they will offer.
Staffordshire County Council for example, recognises that there will be a 5% rise in the cost (wages) and are offering a 1% rise. Worcestershire is offering a 2.4 – 2.8% increase, whilst nationally the FNC payment is increasing by 2%.
So, we can safely expect our local authorities to not help much.
But it doesn’t end there – the Government aims to have the NLW reach £9 by 2020. The office for budget responsibility forecasts the figure will be more like £8.75. That is a further 12% on top of this 5% increase (£9 would comprise a further 15% rise.) over the next couple of years.
Your fees need to increase as soon as possible so that you can cover this year’s wage increase.
And if you don’t do this now, then the gap between the fees you need and the cost of running your home will only increase even further when the next NLW rise comes into effect.
You must act now – you must increase your social services fees to cover the care your clients’ need and the increasing cost of running your care home.
How do you intend to increase your fees?
First, you need to review the fees that all of your clients are on and compare each fee to the cost of the care that your client needs. In other words, does the fee you receive for each client meet his or her individual care needs and return a decent enough profit?
To make sure that the fee is enough you need to record all the care that your client receives and cost it based on your average carer and nurse new hourly rates (including extra employer costs).
You should also cost out any care that your client would benefit from but which you’re unable to afford to give, such as activities or external trips, etc.
Now, if you’ve never done this before because you accept the fees that your local authorities say they will pay, then this isn’t a trivial exercise. But it is one you must do because I can pretty much guarantee that you will not be receiving a high enough fee and will very likely be delivering that care at a loss.
Once you know how much your care provision actually costs, then you need to set a fee that includes a decent enough profit level to ensure you can afford to invest in your care home and be a strong, financially viable care home.
Unfortunately, you can’t simply call your local authority and demand a higher fee when you’ve been accepting low fees for however long.
But, if the needs of your client have changed (and you can show that with real evidence) then you can have a review meeting and use the opportunity to show a breakdown of the true cost of meeting his or her needs.
Now, you are in a much stronger position to negotiate a higher fee or ask the LA to take back their client because you cannot meet their needs on the fee you receive. (If they won’t accept your fee then you should seriously consider this latter option for the long-term health of your care home.)
It is of course, easier for new clients as you can set the right fee from the start. And set the right fee you must.
If you have simply been accepting the fees LAs insist they will pay (or if you have to bid online and have been reducing your fee to win a client) then you must stop. You are killing your business.
You have a big, sudden increase in your costs and you’ll get another next year and the year after that if the Government follow through with their plans.
You need to address this today.
So, review and calculate the real fee you should be receiving for each of your clients and, if their needs have changed then have a review meeting.
For new clients, make sure you set the right fee from the start and don’t back-down when your LA objects to paying it.
The survival of your care home depends on this. Please don’t put it off.
If you are not receiving the fees you need or if you don’t know how to accurately calculate this fee then join our training session and we will show you how.
Click this link, www.settherightfees.com and register your interest in attending this training session. When the next one is set we’ll let you know first, so you don’t miss out on securing your place.
If you are not convinced by anything I’ve said here, then please read my report, The Secret to Running a Successful Care Home.