Starting any business is a large undertaking and opening a care home is no different. Running a residential care business requires time, hard work, and a strong sense of responsibility, but can nonetheless be incredibly rewarding.
In this piece, Lottie explores how to open a care home business, investigating everything from start-up costs to current levels of demand.
If you’re interested in becoming a care provider, read on to learn more about getting started.
The first question to consider for any new business opportunity - is there demand? If your idea is to start a care home, then the answer is yes.
According to the Healthcare Development Opportunities 2021 Report, from estate agency Knight Frank, there are currently an estimated 12,034 care homes in the UK. While this number may seem high, it has only increased by 6% over the past decade, while the UK population has grown by 22%.
To meet the demands of this enlarging population, new social care providers must enter the market. In their 2020 UK Care Homes Report, JLL estimated that as many as 110,000 additional beds will be required over the next 10 years to meet the rising need.
Having established that there is demand for residential care providers, the next question to ask is are you the right person to open one? When running a care facility, you must balance the need for efficient business management with a compassionate approach to each individual.
This can be best understood by examining the service provided by outstanding existing care providers, as determined by the Care Quality Commission (CQC):
This individualisation of care, accounting for each person’s needs, is only achieved through management with a blend of diligence and empathy.
Although anybody can purchase a home, it is often most suitable for those who have previous experience in care or a similar sector. For this reason, it is common for nurses or doctors, wanting to become business owners, to open new homes.
A background in medicine provides a wide set of transferable skills, as well as experience in balancing sympathy with tough decision making. These are essential for managing a care home.
While your care home may be a private business, the nature of the work requires government involvement and regulation. This is to ensure care is of a high standard.
Further, the beds of many residents will be partially or fully funded by local authorities. This means the authorities can carry out random inspections and will occasionally dictate required processes or standards.
This red tape demands patience to navigate. If you feel that following it would cause significant frustration for you, managing a care home may be difficult.
The UK’s care sector consists mainly of older providers and many need updating, with 71% being over 20 years old. Further, additional care capacity is required to provide for the increasing population of the UK.
The UK government has indicated their ambition to assist this growth, by proposing an additional £12 billion worth of investment into social care over the next three years. This means a significant increase in the number of patients whose care is backed by the state, as well as financing for homes.
When considering your competition and establishing a unique selling point, it’s important to understand your customer’s consideration factors.
According to a report from the Competition and Markets Authority (CMA), location is the most significant factor for choosing care homes. Affordability is also a deciding factor, helping consumers (particularly those not receiving state funding) to shortlist homes.
Secondary considerations are cleanliness, friendliness, and a sense of homeliness. These help to decide once providers have been shortlisted.
The CMA report also examined specific concerns around the fair treatment of residents. Centring solutions to these issues in your business could help to differentiate your home from competitors.
Areas for improvement within the care home sector included:
Finally, you should research your local market’s issues by examining other care homes in the area. The aim is to understand the service rivals offer and identify opportunities for improving upon it.
‘Occupancy rate’ refers to the ratio of residents to unoccupied beds in your care home. For example, if your care home had a capacity of 20 beds and 10 were filled, your occupancy rate would be 50%.
According to Knight Frank’s Healthcare Development Opportunities Report, the UK-wide occupancy rate declined from 89% to 79% over the course of the coronavirus pandemic. This was unfortunately linked to the unprecedented health and safety challenges of the period.
However, occupancy rates have begun to recover, boosted by coronavirus vaccines and the finetuning of protective measures. As deaths from the virus become less frequent, it is expected that the percentage of filled beds will continue to rise.
The financial projections for residential care providers differ according to their capacity, running costs, and fees. These are all likely to vary depending on location and target consumers.
Hallidays estimates the UK care industry to be worth £7.7 billion as of 2021. Despite this large number, there can be difficulties with profitability.
When all expenses are accounted for, payments from local authority funded residents are sometimes not sufficient to cover the price of their care. This is due to pressure from local authorities for lower fees.
These losses must be offset by attracting self-funded residents, who pay a healthier margin for their care. Further, efficiencies can be made to reduce operating costs, including the implementation of care software and monitoring to ensure best practice.
By adopting such changes and increasing the number of privately funded residents in your home, you can ensure strong financial prospects.
When starting any new business, a plan to guide your efforts is vital. This provides an outline of your idea, the wider market, and steps to ensure profitability.
A business plan typically focuses on between the first one to three years of operating. Creating a written scheme for this early period, with clear objectives and priorities, helps you to direct your efforts and identify any weaknesses.
When creating your care home plan, you should ensure it includes:
Your plan should be detailed but concise. It’s important that any potential investors can easily glean key information and understand your business idea.
If you’re looking for further guidance on how to create a business plan, The Prince’s Trust provides templates that can be used for structuring.
To open a care home significant capital will be required to cover start-up costs. These will vary greatly depending on the type of facility and its size.
According to research from Business for Sale, the cost to purchase a small care home is generally between £500,000 to £2 million. Additional funds would be required for any desired updates to the building, grounds, and facilities.
Opening a new care home can be more costly than acquiring an existing business, as the premises and equipment would all need to be bought. This requires considerable upfront investment, although it does mean your home would benefit from being purpose built, which can draw higher fees.
While it is difficult to estimate the cost of starting a new care home, according to the CMA Care Home Market study, a large 60 bed care home would cost around £8 million to build. Using this as an indicator, building a new facility with even a fraction of the beds could cost millions.
Once the care home has opened, you will require further money for the wages, food, and necessary care supplies. A report from the Joseph Rowntree Foundation estimated this expense to be £353 per week per resident.
These overheads should be covered by your residents’ fees. However, you may initially need extra funds for these payments, until you reach a sustainable occupancy rate.
Developing a purpose-built care home tends to be a more costly way to enter the market. However, there are channels for investment and particular circumstances that can make this a preferable option.
Firstly, you may wish to open a new care home in partnership with an established developer if you already own suitable property or land. An agreement could be made in which you would provide the land and the developer assists in building the home, with shared ownership of the resulting business.
You can also support the creation of new facilities by purchasing stocks in a care-focused real estate investment trust, such as Target Healthcare REIT or Impact REIT. Investments in such companies can be a risk, although they do tend to provide strong yearly returns.
The advantage of purchasing an existing care home is the avoidance of the unknown. Whether the business is currently profitable or not, you are investing in certainty.
When buying an existing business, the deciding factor for the price should be the revenue stream, with the facilities and building as secondary considerations. You should particularly explore any standing contracts with local authorities, as these can be difficult to renegotiate.
Further, you should protect your investment by examining the home’s current reputation. This can be done by looking at their CQC rating and any litigation they may have been involved in.
If you’re interested in purchasing a care home, online services such as Business for Sale can be a useful place to start your search. Business Gateway has a general guide to buying a business that may also be helpful.
Given the high cost of purchasing or opening a care facility, it is unlikely that you will have sufficient funds to cover the entire start-up cost alone. Bank loans and investors are the most common routes for obtaining supplementary funds.
According to True Legal, banks will typically lend up to 75% of the capital required, meaning you will need a 25% deposit. Using this ratio, you’d need at least £125,000 already saved, if you were purchasing a small care home at £500,000.
All care providers should be registered by applying to the CQC. Operating without a licence is against the law, whether you are an organisation, partnership, or individual.
Your application will be assessed based on the CQC’s regulations. Registration will only be granted if your care home can sufficiently comply with these requirements.
A care home is likely to be classified as an organisation, meaning that a registered manager will also be required to run the operations. This person will be overseeing elderly people’s care, so it’s important that they are properly vetted by the CQC.
The Health and Social Care Act (2008) established the powers and responsibilities of the CQC. From this, the CQC has set out regulations that all care homes must comply with.
Although too numerous to list in full, the focus of the regulations is on upholding a high standard of care. Staffing, premises, and respect for residents are all covered in the rules.
These regulations are used by the CQC to assess applications and for inspecting existing homes. The full list of requirements can be found on the CQC site.
CQC registration is not all you must consider before entering the care sector. There are many relevant laws and you should consult a lawyer specialising in social care to ensure compliance.
According to the Food Safety Act, businesses that store or prepare food must be registered with their local authority. Care homes often serve food to their residents, meaning they fall under this regulation.
All staff employed in your home must be checked with the Disclosure and Barring Service (DBS). Anyone that has been listed by the DBS as barred from working with children or vulnerable adults cannot work in a care home.
Any business with five or more employees must have a written fire plan, detailing safety measures and evacuations. Protections such as fire doors, extinguishers, and alarms should be included.
Further guidance on fire safety regulations can be found on GOV.UK.
Resident rooms and communal areas may be equipped with screens. Each area and room with a TV will require its own licence, although these can be obtained at a reduced rate by care homes.
Ensuring good service and meeting care quality standards is crucial for your business’s success.
As set out by the CQC, the fundamental tenets of care include:
The core of ensuring a care home business thrives is prioritising the quality of your service. Meeting and surpassing the CQC’s regulations will therefore position your venture for success.
As a care provider, your home should ideally feel like one for the people who live there. Encouraging a sense of community and valuing your residents is the best way to maximise their happiness and your results.
Simple gestures, such as greeting residents by name and helping them to personalise their room, can make a big difference. Remember you are caring for people, each with a unique story and different needs.
So, there we have the Lottie guide to opening a care home. This guide can apply to residential homes or nursing homes though there will be slightly different considerations if providing nursing care.
While the sector can be difficult, caring for elderly people and seeing the difference you make to their lives can be amongst the most enriching of professions.