Covid-19: How can care home owners weather the pandemic storm?

Research carried out for the BBC suggests more than a quarter of UK care homes are in danger of closing. The industry was already facing long-term financial struggles before Covid-19, and high resident death rates, PPE difficulties and other pandemic challenges have only added to this.

But with an ever-ageing population, there will always be a need for care facilities. In this article for current and would-be care home owners, our healthcare sector team explores:

• How you can avoid your care home becoming insolvent
• How you can look after your care home staff
• What you need to consider when looking to finance a care home purchase

How can care home owners avoid insolvency?

The pandemic has put significant financial pressure and strain on almost all industries, with care homes heavily hit. Even before the pandemic, data from the Care Quality Commission showed the number of care homes in England dropped by 6.5% between 2016 and 2019.

However, Covid-19 means the sector is more financially stretched than ever before. This is for two key reasons:

1. Reduced income: As resident numbers have fallen, care home income has considerably reduced with no guarantee of new residents. What’s more, it’s anticipated public sector spending will be cut over the coming years which could pose more challenges.
2. Increased costs: In the short term, the pandemic has led to rising staffing costs and the extra expense of PPE. In the long term, insurance costs are expected to grow due to claims made by family members.

So what practical steps can you take to prevent insolvency? The first thing to do is regularly review your cash flow forecast to predict short- or long-term problems. If potential issues become apparent, it’s important to seek early advice on the many formal and informal options available to rescue the business. These include:

• informal renegotiation of terms with lenders/creditors
• time to pay (TTP) arrangements
• seeking external finance
• presenting a company voluntary arrangement to restructure debts due
• placing the business into administration to create breathing space for considering all remaining viable options

As with all formal/informal processes, it’s vital to seek professional legal advice as soon as possible.

How can care home owners look after their staff?

Covid-19 has put a great deal of pressure on staff in care homes. Staff burnout was an issue even pre-pandemic due to problems with staff retention and recruitment. But now, care workers must also adopt a “keep calm and carry on” mentality while acting as an emotional support system for residents isolated from their families. This is emotionally and physically draining.

Not only that, but employees face other challenges too – such as staff shortages due to self-isolation requirements, and an inability to see their own family and friends. And, of course, there’s the ever-present risk of infection.

So how can care home owners protect the wellbeing of their staff as well as residents? There are several different strategies, including:

• engaging with your staff through conversation and monitoring their wellbeing
• organising group support sessions
• providing a mental health support system to reduce the risk of post-traumatic stress disorder, anxiety and depression
• making referrals to occupational health where there are specific concerns about a staff member
• using designated areas for residential visits and limiting staff contact with visitors
• ensuring visitors observe Covid-secure measures such as PPE and social distancing

To find out more, read our full article about what care home providers need to think about in their role as employer during the pandemic. 

What should you consider when looking to finance a care home purchase?

In the current climate, many mainstream lenders are focusing on serving their existing client base, including via the various government-backed loan schemes, rather than engaging in “new” lending.  This means you may find it a little tricker to finance a care home purchase, particularly if it’s your first one.

However, we’re still busy with a number of care home transactions, and the ageing population gives good cause for optimism about the industry’s future.

So what do you need to consider if you’re looking to acquire a care home with third party finance? Here are some key factors that may determine the success of your application for finance:

• Track record: Do you have experience in running a care home?
• Target performance: How well has the business been performing?
• Business plan: Do you have a well-researched business plan?
• Lender relationship: Do you have an existing relationship with the lender, or other similar lenders?
• Personal investment: How much can you contribute to the purchase price?
• Security: What type of security can you offer, in addition to standard security (debenture/legal charge)? (E.g. cross-guarantees/personal guarantees)

If any of these issues is impacting your care home business, please contact our healthcare team.