How to open a care home

The UK care home market

According to carehome.co.uk data from 2021, there are more than 490,000 residents in UK care homes, 70% of whom have some form of dementia or severe memory problems. They’re looked after by a combined total of nearly 600,00 staff, the vast majority of which work in residential homes. 

According to the Office for National Statistics (ONS), demand is going to increase significantly, with the number of people aged over 85 expected to increase to two million by 2025. This represent a 36% rise from 2015.

A recent report from the Competition and Markets Authority (CMA) identified a number of specific concerns about the way UK care providers have been treating residents including:

•        A lack of pricing information on websites
•        Providing contracts too late or not at all
•        Charging large upfront fees and deposits
•        Suddenly increasing fees after a resident has moved in
•        Expecting fees to be paid for an extended period after a resident’s death
•        Asking residents to leave at short notice

These areas of weakness are easily rectified. There’s ample opportunity for a new provider to step into the place with better ways of doing things. Doing so could set you apart from a what seems to be a growing culture of unfair practices in the care home sector and win you dissatisfied customers.

Who should run a care home

Running a care home is not a business venture that should be undertaken lightly. Looking after people at the end of their lives is a huge responsibility and should be treated as such.

Unfortunately, the UK care industry has had its fair share of chancers in recent years, looking to make a buck at the expense of the dignity and comfort of those in their care.

If you are driven purely by a wish to make money then you won’t go far in this game. Compassion is a must and a genuine desire to enhance the lives of your residents rather than just provide a room and treatment. This should extend to the people you employ as well.

With that attitude your return on investment won’t just be a financial one, it will be a personal one.

Expert Insight – Fazalabbas Fazel, Southampton care home owner

After a career in investment banking, Fazalabbas Fazel now runs a care home in Southampton and is on the board of care management software company Log my Care.

He says that it was only once he entered the care home sector that he realised how diverse and wide-ranging it could be:

“There are so many different areas within care that you can provide, and various types of facilities that you can provide them from. For example, there is residential care, dementia residential care, residential care with nursing, residential care with nursing for dementia, learning disabilities, supported living, extra care – the list goes on.

“Facilities can range from converted houses within single and double bedrooms, to purpose-built homes that only have single en-suite bedrooms. You can even have mixture of both where you start off with a large converted house, and then bolt on purpose-built extensions. Or you can have a massive retirement community village that houses a care home, specialist senior living houses or apartments (and maybe a golf course!).”

So, make sure you keep an open mind when you’re considering starting a business in the care home sector.

Care home business plan

A carefully considered business plan can mean the difference between success and failure for a new business.

You should detail your objectives, mission, overheads etc. Starting a care home is an expensive business so you might want to include plans for finding finance if you don’t have the capital up front.

Download our business plan template here.

Nursing home start-up costs

Starting a care home is not a lean start-up model. Your primary consideration is going to be finding a suitable building and location.

Ada White from Ivelhurst Nursing Home in Yeovil, Somerset, says:

“You will need a minimum of £2m to start; the equipment is expensive but it’s not the main expense.

“The main cost is the premises.

“For a care home to be profitable, you will need to be able to provide care for a minimum of 25 clients.

“A purpose-built home is the best choice, but to get immediate cash flow, you could look to buy a care home with a proven track record or a home that requires refurbishment while being able to continue operating.

“It’s very important to choose a location where you can find staff as you will be employing a lot of unskilled people. They won’t want to travel too many miles to work, as it does not make financial sense to travel too far.

“Then you need to consider that a few of the relatives of the people residing in the home might be elderly themselves so they may need to use public transport or they would like to travel only a short distance to visit. So, a town is best, rather than a village with marvellous views as it’s not practical.”

You’ll obviously need a ready supply of residents or soon to be residents nearby.

The ongoing costs of running a care home are also considerable. Your energy costs are going to be high so it’s worth looking into getting a good deal on your business energy.

Nursing home profit margin

In the same way that many brits find the idea of privatisation in the NHS completely unpalatable, profit-seeking is a bit of a thorny issue in the care home sector, with many thinking you can’t boost profits without sacrificing the quality of care.  

This concern isn’t unfounded: the CMA’s study found that many care homes in the UK are living with an unsustainable level of debt, with private equity firms extracting huge returns with impunity.

However, White has a simple formula for a profitable care home: “Full occupancy, same as hotels”.

She says that working out how much to charge clients depends “on the size of the rooms and facilities. You then need to research what fees local authorities charge and work out the prices for private patients from there.”

In 2021, the average weekly fees are £704 per week for a residential care home, and £888 for a nursing home.

Buying or selling your care home

Seek the council of specialists when buying or selling a care home. Carehome.co.uk has a list of advisors in corporate finance, employment, funding issues, sales agencies and legal issues, as well as a regularly updated list of care homes for sale.

According to Christian Mancier, a corporate law partner at Gorvins Solicitors, making a successful exit will be dependent on achieving high inspection scores from the CQC:

“Lower scoring inspection reports give the buyer an opportunity to seek to reduce the price offered. As a consequence, maintaining consistently high scores actually helps drives value on an ultimate exit/sale.”

Reputation is everything in the care sector and a prospective buyer is unlikely to buy a home that is known for sub-quality care and has faced legal action.

Looking after people who can be extremely vulnerable does bring with it a fair amount of red tape and regulation and the need to be properly protected with adequate insurance policies. Find out everything you need to know about care home regulations and insurance here.