There are approximately 10,000 Independent Care Homes in the UK demonstrating a wide range of Financial and Operational performance. Whilst not intended to be exhaustive, my extensive experience within the Care Home sector would lead me to summarise the key questions to ask and consider at the outset of a business relationship with any Independent Care Home as follows (split between Operational and Financial):

1. Does the Care Home Owner have active day to day involvement in running the business? If not, what is the overall quality of the Care Home Manager?

   Implication – there is the potential for clinically-focused staff to judge all issues on a medical rather than a commercial basis. This can lead to responses to the more commercial issues impacting a Home either being ignored / delayed or not communicated sufficiently quickly to the Owner.

2. What is the standard of recent Care Quality Commission (‘CQC’) Inspection Reports (all of which will be in the public domain on the CQC website), how serious have identified issues been, have these now been addressed and when is the next CQC visit scheduled (if necessary)? Additionally, what has been the outcome of any (likely to be less formal) local Social Services’ reviews?

   Implication – adverse Social Services’ reviews or CQC Inspection Reports not only run the risk of attracting a suspension of Local Authority block referrals but (as the latter are also in the public domain) of also reducing the Home’s attractiveness to the connections of potential Private residents. Both of these therefore could have an impact upon the room occupancy percentage KPI.

3. Overall, what is the quality of the Home’s on-site facilities plus ancillary?

   Implication – a ‘tired’ home with inadequate ancillary (eg. parking) will prove less attractive to potential new (particularly Private) residents which could cause occupancy levels to fall. This in turn could potentially lead to cash flow constraints, together with an increase in unplanned maintenance / repairs and renewals and difficulties in attracting additional bank funding needed to support necessary and sufficient CAPEX. Catch 22!

4. What is the ratio of Local Authority to Private occupied rooms and how is this ratio trending?

   Implication – whilst Local Authority work provides an under-pinning annuity for room rental income, Private residents are likely to pay an average of circa 30% higher rental per occupied room. However, attracting more Private residents is likely to be increasingly dependent upon a strong marketing strategy by the Home (increasingly Internet driven and relying upon effective Search Engine Optimisation).

1. Is a suite of relevant KPIs maintained?

   Implication – failure to achieve this (particularly if the Owner is not involved day to day, see above) makes it difficult for management to react swiftly to sudden changes in the operation (eg. most notably with respect to occupancy, wages or debt levels or significant changes in the Local Authority/Private resident occupancy mix).

2. How efficient are the Care Home’s debt management processes?

   Implication – the Care Home’s debtor book at any time is likely to be a mixture of Private residents’ fees, Local Authority fees (relating potentially to both spot and block contract rooms), Resident Contributions (ie. Private contributions to rooms rented by the Local Authority) and Free Nursing Care Contributions (ie. Local Authority contributions to rooms rented Privately). The speed of payment of these various income streams can not only vary but can also be slowed by sudden increases in resident turnover. It is therefore crucial that the Home has strong debtor management policies, particularly as its two most significant costs (ie. direct wages and food) often have to be paid out on a weekly basis which can therefore add to short-term cash flow pressures.

3. Are direct wages levels effectively managed and related agency costs minimised?

   Implication – direct wages are by a huge distance the most significant expense that a Care Home incurs (the ratio between direct wages and fee income is likely to be at least 50% despite a significant proportion of the Home’s staff being paid at or just above minimum wage levels). Therefore, direct wages need to be strictly controlled (albeit whilst ensuring that appropriate legal staffing levels are maintained at varying occupancy levels). Failure to achieve this is likely to therefore involve incurring significant agency costs (which can cost the Home up to three to four times the equivalent cost of using own staff).

4. What comprises the Care Home’s central overhead and is it strictly controlled?

   Implication – the structure of the Care Home’s Income and Expenditure statement is driven by fee rental revenues which are impacted by occupancy rates. Therefore, any falls in occupancy percentages are likely (with direct wages semi-fixed in the short term given statutory considerations, see above) to largely drop through to the bottom line. Consequently, it is crucial that central overhead is always minimised in order to limit the resultant adverse impact on profits in this scenario.