How to start up a care home

Care homes provide residential and sometimes nursing care to elderly and other residents in a sector that is quite heavily regulated. Read our practical guide to starting up and running your own care home.

Research your target market

When you plan your care home business it's essential to make a realistic estimate of how much demand there will be, and of the extent of local competition. Doing some market research will help you with this.

How much competition is there?

Your main competitors are, broadly, other care homes within your local authority area - and specifically, other local care homes that offer a similar level of quality and service to your own.

Have a browse on Yell.com and look through local directories for residential and retirement homes, nursing homes and convalescent homes. Try searching the web too. Your local authority may have a list of residential and nursing care providers on their website. Make notes about the range of services that they offer - many will include details in their advertisement. Go and look at some of the homes in your area - are they upmarket and exclusive, smart and pleasant, or perhaps shabby and run down? Try to find out something about their reputation - you could check their latest inspection rating (where applicable) and search online for reviews and opinions.

Don't ignore homes that offer a narrower range of services than your own - at times when funds are tight, local authorities may try to save money by opting wherever possible to provide the lowest acceptable level of care.

Find out about any homes that are owned by the local authority or by a charitable organisation - it may be the case that these are favoured by the local authority because they are considered to offer better value. Look out too for homes in your area owned by major companies - these are usually large and very efficiently run. Try to find out whether your local authority has an 'approved providers' list - if it does, consider taking steps to get your home on it.

Domiciliary care services

Domiciliary care is an alternative to looking after elderly, infirm or otherwise vulnerable people in a care home. Special businesses exist to provide in-home care for such people. In some cases, existing care home businesses have branched into this area of the market. Fees are normally lower than in a care home and domiciliary care can, where appropriate, offer an attractive alternative to local authorities and private individuals looking for the best value option.

Try to find out about domiciliary care provision in your region. It may be that your local authority appears to favour this approach. You could look into offering this type of service yourself.

Clients

Depending on the type of services that you offer, your residents might be elderly people, people with learning difficulties, people with physical disabilities or possibly those suffering from a specific condition or illness. Although your residents may come from anywhere in the country, many will be people from within your region.

Find out as much as possible about the local population to help you make sure that your nursing home meets local demand. Local authority funding is means tested - is yours a wealthy area, where many people are likely to have savings or insurance policies with which to pay your fees? Or are most people likely to be eligible for state funding?

Research current trends, plus legal and tax issues

Occupancy

The percentage of the total number of places that are occupied at any one time is referred to as the occupancy rate. So if you have ten beds and nine residents in your care home, then your bed occupancy rate is 90% (it's most usual to talk in terms of bed occupancy in a care home, but sometimes room occupancy might be looked at too). Occupancy will probably fluctuate a bit and it's usual to look at occupancy as an average over a given period, often a year.

You will need to estimate what your average occupancy rate will be during the first year of business so that you can forecast your income for the cash flow. It is realistic to expect that your occupancy rate will initially be quite low. You will hope to increase your occupancy fairly quickly as your new business becomes established. It may be that some people have already put their names down to enter your home when it opens - if so, use this as a starting point for estimating occupancy.

Your occupancy rate may be affected by the type of care home that you open. For example, if you decide to target a specialist niche market for which you have identified strong demand, you might expect your occupancy to be higher than in, say, a middle of the road care home for the elderly.

As a very rough guide, if your income estimates for the first year in business (possibly excluding the first month) rely on projected average occupancy of much more than 85% or so then it is possible that you will have to re-think some aspects of your business plan.

Remember that occupancy can be affected by a number of different factors, including:

  • the reputation established by your home
  • the fees that you charge
  • the amount of local demand
  • the amount of local competition
  • the approach adopted by your local authority towards care provision
  • regional location; average occupancy is higher in some areas of the UK than in others
  • any legislative changes which affect either the amount of public funding available to care home residents, or the way in which local authorities are required to meet their obligation to provide care

Find out whether your local authority publishes any statistics on care home occupancy in your area - if this information is available it could be very helpful for your financial planning. Some of the regional care regulators publish care home occupancy statistics too.

Services and quality standards

Decide at an early stage in your planning what types of service you will offer. The first stage is to decide whether your care home will offer:

  • just residential care
  • residential care with nursing

You could also consider offering sheltered housing or assisted living.

Your choice will affect the level of fees that you charge, the amount and type of equipment and staff that you will need and also your start up and operating costs.

There are other areas that you might consider besides caring for the elderly. Specialist care sectors include people with learning difficulties, people with a severe physical disability and sufferers of a particular condition or illness (for example dementia).

Domiciliary care (looking after people in their own homes) is an area of the care sector that is currently receiving a lot of attention. Some care home businesses - particularly the larger providers - have already diversified into this market.

Think about the range of services that will be available to residents in your care home. Some of these may earn extra fees for your business. You might, for example, install facilities for:

  • private medical treatment
  • intensive nursing care
  • physiotherapy

Decide what level of quality and service your residents will receive as standard. Things to consider include:

  • bedroom sizes, and the level and standard of furnishings and equipment (for example a microwave oven, refrigerator, telephone, broadband internet or WiFi and so on)
  • the provision of essential services, for example hairdressing and chiropody
  • the number and nature of communal rooms - these might, for example, include a bar, separate television lounge, library and so on
  • recreation and entertainment; this might include regular outings and on-site events
  • other facilities that you will offer; for example, will residents have easy access to specially designed areas of the garden?

Bear in mind that in some regions of the UK certain minimum accommodation standards, for example regarding minimum bedroom size, are required by law under the statutory minimum care standards. (Other minimum standards apply to all care homes throughout the UK.) These are monitored and enforced by the Care Quality Commission (CQC) in England, the Regulation and Quality Improvement Authority (RQIA) in Northern Ireland, the Care Inspectorate in Scotland, and the Care and Social Services Inspectorate Wales (CSSIW).

You should take into account both the level of care and the standard of facilities that you offer when you set your fee level.

While many care homes offer high quality care, a few well publicised examples of neglect and even abuse tarnish the image of the industry, which regularly faces criticism over quality standards. Make sure that all your staff understand the importance of maintaining a happy, caring atmosphere in the home and that they have received appropriate training. Remember that even small things can make a difference to residents - for example, mealtimes will be the highlight of the day for many.

Rating schemes

The CQC uses a colour/symbol-based rating scheme for the services it inspects, with four rating levels ranging from 'outstanding' (green star) down to 'inadequate' (red dot). A fifth symbol - a grey dot - indicates 'no rating', 'rating under appeal' or 'rating suspended'. Inspected providers' ratings are available to view on the CQC website.

As a food business you may receive a rating under the Food Hygiene Rating Scheme in which many local authorities participate. Rated businesses receive a rating of zero to five (where five is 'very good') which they can display at their premises.

Food businesses in Wales and Northern Ireland are required by law to display their rating in a prominent location at their premises.

The last few years have seen the hospitality rating website TripAdvisor become hugely popular, and there has been much talk by the government of supporting similar ratings websites for care homes. Several such websites now exist, including carehomeadvisor.com, but there isn't yet a major 'go-to' ratings website comparable to TripAdvisor.

Pricing policy

The care home sector is very competitive and it is important to set your fees at the right level. Nursing home fees are normally around £200 or more a week higher than residential home fees, reflecting the higher level of care that they provide. Your fees should reflect the standard and quality of the care and the facilities that your home offers.

Three important factors to consider when setting your fees are:

  • the amount that you will need to charge to cover all of your operating costs and make an acceptable profit margin
  • the going rate in your area for the type of services that you will be offering
  • the maximum amounts the local authority will pay towards residential and nursing care for elderly people

Try to find out what other care homes in your area charge. Compare their facilities and quality standards with those that you intend to offer. Find out what is included in their charges - and what isn't.

In many cases, the going rate will be the maximum amount that the local authority pays for particular levels of care. Try to find out what your local authority's fee limits are - contact the care homes section of your local social services department. Many local authorities publish this information on their website.

You may decide to set your own fees at a level close to or below the local authority maximum. It is important to do this if you anticipate that a large percentage of your clients will be state funded. In a typical 'middle of the road' home charging an average fee, around 40% of residents would normally be fully state funded by their local authority. Remember that local authorities who are purchasing care on a resident's behalf have a duty to obtain good value for the money they pay out.

However, if you think that there is a demand for a more upmarket service from clients who can afford to top-up state funding or pay their own fees, you may decide to ignore these limits. Alternatively, you might decide to charge a higher fee, but to accept state funded clients at a lower rate.

Make sure your fees are set out as clearly as possible so that residents understand exactly how much their care will cost them. Avoid bumping up bills unfairly with hidden extras. When fees have to go up, make sure that your residents know about the rise as soon as possible and understand the financial implications. The Office of Fair Trading (OFT - since replaced by the Competition and Markets Authority) published a report on care home fees in the mid 2000s that recommended greater clarity, simpler fee structures and more information about fees for elderly people. In November 2018 the CMA published guidance for care home businesses on treating residents fairly, including clearly setting out the fees payable. You can download Care homes: consumer law advice for providers from the Gov.uk website.

Buy an existing business

Opening a new care home can mean building it from scratch. Alternatively, if an existing building - for example a large old house or hotel - is to be used, it will generally be necessary to completely gut it and carry out extensive conversion and refurbishment work. This can give you the opportunity to make sure that your new care home includes the latest facilities, meets the latest standards, runs as efficiently as possible and is highly attractive to would-be residents. However, new build or an extensive refurbishment is generally a costly option.

You might decide to buy an existing care home business rather than start your own venture from scratch. Buying a going concern can mean that:

  • a reputation has been established - among the local population and with local authorities
  • there is an existing business relationship with the local authority

Other matters to consider include:

  • be sure that the care home has not run into financial difficulties as a result of adverse publicity
  • the reputation of the home and its performance in recent inspections (including inspections and ratings by the care regulator as well as food hygiene inspections). Check too for online reviews and ratings from residents and their families - and for any adverse media coverage
  • whether there are any outstanding actions, enforcement orders, unsettled disputes or litigation
  • current and historic occupancy levels - do these appear unusually low and are they rising or falling
  • budget for other professional fees such as legal fees and valuation and survey costs.

Unlike many other types of business, buying a care home very often involves acquiring the building itself (freehold or on a long-term lease). This may well include accommodation for you and your family, so you could be combining a business purchase with a house move - giving you plenty more to think about!

But buying a business can be a hazardous, expensive process unless you have the right skills and experience on your team, including legal and financial know-how. Establish the genuine trading and financial position, so that the price you pay for the business is not too high.

 

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