Buying a care home – the next steps

In the previous instalment of the blog, we looked at the first steps you might take in order to buy a care home business, focusing on working out whether it was the career for you and how to pick the right kind of business to fit your needs and capabilities.

With this in mind, it is time to start looking more closely at the potential businesses you might be able to buy, their location and other factors, as well as the money and time you may need to invest in order to ensure its success.

Location and legislation

The location of a newly-acquired business can be one of the most significant factors in its success, both thanks to its impact on your personal life and on the running of the business.

At first it is worth thinking about how far you would want to relocated from friends and family, particularly given the need at a care home to be available for 24 hours a day to residents and staff, especially in the beginning. Though prices in remote locales can be attractive, you should seriously think before committing yourself to a life miles away from anyone you know. This also applies to your staff - most will not be prepared to travel miles to work every day.

In the main, you should consider the following factors when considering your new care home’s location:

Distance from nearby residential areas
Distances from local amenities such as shops, local transport links, recreational facilities and medical services, particularly hospitals and surgeries
The presence of competition - how close are they? What type of service do they offer?

Existing business are likely to be in areas that were already determined a good location but, remember, that recent downturns may have been related to a local development, a new competitor in the location or another geographical factor. Research the business you might buy and its local environment in depth to find out as much as you can.

Money, money, money

With the cost of a care home running from around £500,000 to £2 million - depending on facilities, size, location and condition - though homes cheaper than this can and will continue to make healthy profits.

With such large overheads already, most buyers will require third-party funding for the purchase and should look to a funder with industry-specific experience. It is good to speak to a funding provider, should you need it, as soon as possible.

Increasingly, funding providers will focus on the buyer’s ability to comply with regulatory outlines - as we outlined in the previous instalment of this blog - and particularly issues surrounding checks by the Care Quality Commission (CQC), who regulate all care homes in the UK. This is because funders will lend against the entire value of a business and property, which will by its nature encapsulate some of the inherent risk of the strict regulatory requirements.

Apart from the cost or down payment on the premises itself, you should also budget for the following charges:

A business valuation fee
An arrangement or set-up fee (often negotiable)
Any broker fees, if you are using one
Stamp duty on the property
Solicitor’s fees
Registration fees with the CQC
Start-up capital, for initial staff costs etc.

Risks and rewards

Though on the whole the industry outlook is good, there are some risks to bear in mind when taking on a care home. There is a degree of competition in the industry and, along with market consolidation, there are many new players who are building state-of-the-art homes by the day. Specialist care agencies or home visiting firms are also worth watching out for.

Other risks include running afoul of strict regulations and standards, which can be particularly hard for smaller businesses to manage. Funding from the government and elsewhere is also entering somewhat of a crisis, too, with soaring numbers of retirees and an aging population in the UK pushing up demand for spaces despite a lack of funds.

Once you are up and running with your care home, financially speaking, you will find that after the initial hurdles the profit margins for running a care home are very good. On average, successful businesses in the sector should record pre-tax earnings of around 25 to 30 per cent of turnover, with a very successful care home able to reach the mid-30 per cent mark up.

Many different factors can help you price your business competitively, and keeping abreast of market developments and what your competitors are doing is important. Good marketing is also particularly important in this sector: look into intelligent, adaptive marketing that will make the most of upcoming government funding or increased choice in the marketplace will bring you good rewards.

With all this in mind, you should be well placed to make your first care home purchase and to take ownership of a lucrative and stable business.