How to open a care home
If you have both compassion and a good head for business, find out how to set up a nursing home here
The most important steps to following when opening a care home are:
Good news: life expectancy is increasing with the average baby born today expected to live to 100.
Bad news: an ageing population means far more people dependent on the state at a huge cost to the taxpayer.
Pensions account for around 20% of government spending in 2018 and health a further 18%.
Fortunately, this means business is booming for the care home industry. Demand is surpassing supply – according to property consultants JLL, up to 3,000 elderly people in the UK won’t have had a bed at the end of 2018 – meaning the sector is wide open for new entrants to step in and plug the gap.
If you can combine compassion with a shrewd business brain, then get ready to find out how to run a care home.
Running a care home can be an extremely rewarding business opportunity, but it comes with a hefty dose of responsibility and hard work. Over the following pages, we’ll look at nursing home start-up costs, how you can make a profit, dealing with regulation and hiring the right staff.
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But before we delve into how to set up a nursing home, here’s what you can expect to find from…
The UK care home market in 2018
According to a Competition and Markets Authority’s (CMA’s) study into residential and nursing care homes for older people in November 2017, the UK’s care home sector is worth around £15.9bn a year and is responsible for looking after more than 410,000 residents.
Around 41% of care home residents are ‘self-funders’ and pay an average of £846 per week (almost £44,000 per year).
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.
The 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.
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 “I think you will need a minimum of £2m to start; the equipment is expensive but is 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 pay them 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.
The best way to ensure good profit margins for your care home is to provide a top quality service and keep all your beds full.
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.”
Healthcare research specialists LaingBuisson have created the average benchmark fees for residential and nursing care of older people below.
Average benchmark fees for 2016/17
|Floor* per week||Ceiling** per week|
|Residential care for frail older people||590||648|
|Residential care for older dementia care||631||689||Nursing care for older people and dementia||801||861|
*The floor indicates costs for new premises
**The ceiling is for premises which do no more than pass basic regulatory standards
Average projected benchmark fees for 2017/18
|Floor* per week||Ceiling** per week|
|Residential care for frail older people||609||667|
|Residential care for older dementia care||652||710||Nursing care for older people and dementia||827||887|
***2017/2018 figures are projected on the basis of a 4.2% pay increase for low paid staff, in line with National Living Wage, and projections of official indices for other costs
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.
Use the buttons above or below or click here to find out everything you need to know about care home regulations and insurance.