If Your Care Home is Going Succeed, its Financial Viability

Must be Your Number 1 Priority.

That means each bed fee needs to cover your running costs, the cost of any individual extra care a person needs and return a healthy profit.

You run a business and, like any business in any sector, anywhere in the world, its survival is first and foremost dependent on it generating enough income that returns a healthy enough profit to sustain it.

No matter how good your product or service is, if you don’t return a decent profit you are doomed. History is littered with companies that created amazing products or delivered fantastic services, but which couldn’t make enough revenue to keep going.

Profit to a business, including your care home business, is like oxygen to us. Not enough and you will be gasping and struggling and will eventually keel over.

Your care home could deliver the best of care, be rated ‘Good’ by CQC but if it is only making a small amount of profit then it is vulnerable to the unexpected and could go under.

This isn’t scaremongering – for years the care sector has been in crisis and each year too many care homes close because they run out of money.

When I ask care providers what their top priority is, they understandably say to make sure their residents are well looked after. Their residents’ well-being is top of their list.

I argue that of course that’s what they want but if their care home isn’t financially healthy enough then the care delivery will suffer as staff numbers and training is reduced and you’re forced to cut back in other areas as you slowly run out of money – as your care home is slowly starved of oxygen.

Eventually, the residents, whose care you have made your top priority, will have their lives turned upside down as they have to be found new care homes because yours had to close.

Making your care home financially viable is the only way you are going to be able to deliver the best of care and keep you care home resilient enough to make it.

Making your care home financially viable must therefore be your number 1 priority.

Your revenue is of course the fees you receive and chances are these fees aren’t high enough. According to LaingBuisson, in 2020 councils in England paid residential homes an average bed fee of £596 a week and nursing homes an average of £764 a week.

If these are the kind of fee levels you receive I can say with pretty much 100% certainty that your care home is not as financially healthy as it needs to be.

I’ve calculated the cost of care for different care homes with different client needs and, on these average fees, the only one that made a profit was a residential care home where the residents needed no extra care beyond very basic care. And that profit was only 12.6%. Then along care Coronavirus and that small profit was wiped out.

To be financially viable your care home must return a healthy profit. To return a healthy profit it needs to receive the right fee for each resident. Having a set bed price could easily result in an overall very low profit because the extra needs of one client has eliminated the profit you could be making on another whose care needs are less.

Your fee needs to be made up of:

1. Your Running Costs – The cost of running your care home comprises your fixed costs (utilities, food, insurance, equipment, loans, etc.) and your staff costs. This cost is divided across your residents and represents the same minimum cost (breakeven) point for every resident. Divide the care staff wage and nurse staff wage totals, by their average hourly rates and by the number of residents and you have a specific amount of ‘basic’ level care each resident can receive as part of this ‘running’ cost.
2. Extra Individual Care – the cost of any care an individual resident needs.
3. Future Cost-Rise Cushion – A small percentage add-on to help cushion you against future increased running costs such as national living wage rises. Now you have your true breakeven point.
4. Target Profit – the healthy profit your care home needs.

The only way to secure the future of your care home and deliver the high-quality care your residents need is to know your costs and set the right fees.

So, once you know your costs and have calculated the fee you need, you then need to receive that fee and we know what local councils are like when it comes to paying you the fee you need.

I talk about this in the report, “Will Your Care Home Survive This Crisis?”. Your customers – your local councils and your CCGs – have far too much power and are able to dictate how much they want to pay for your bed.

Your first defence against this is having the clarity of knowing what your costs are and knowing what fee you need in order to ensure that you can deliver the care a person needs and be financially viable.

By eliminating the guesswork and having a clear breakdown of the costs of the care that you need to deliver, you are, straight away, in a much stronger negotiating position. I even go through an example negotiation conversation to help you see some of your counter arguments to their protests at your fee.

Key to keep in mind is that they don’t actually know how much it costs you to run your care home and deliver care. Their fees aren’t based on any care knowledge, it’s based on the budget they have and how many beds they estimate they will need to fill in that financial year.

That’s it – your fees need to fit into their budget. Until you stand up and say “No, this is the fee I need” and hold your ground, nothing will change.

And if nothing changes then more care homes will disappear and the sector will collapse.

Of course, you’ll be worried about being left with empty beds but again in the report I show you how to work out the impact of an empty bed versus the impact of taking a person for a fee that is far too low.

Making sure your care home is financially viable has to be your top priority. Fail to do this and your care home won’t last. Get this right and your residents can receive the best of care delivered by the best team of people.