Do The Sector Statistics Tell The Full Story?

Another month, another glut of statistics suggesting yet more crises for the elderly care sector.  However, our experience here at HSKS Greenhalgh, where we advise around 50 operators in the care sector, is that this is currently a period of great opportunity.

The statistics may show the sector in crisis as a result of increasing costs and falling fee income levels due to the pressure on both the NHS and social care.  However, we have four clients currently actively seeking new opportunities within the East Midlands region, who have to date been unsuccessful in finding what they are looking for.

There is also much talk of smaller homes being driven out of the market due to a combination of the increased regulations placed upon them, falling fees and properties that are not fit for purpose.

Again, in our experience, this is very much not the case.  Our owner-manager clients that fall into the non-purpose built area of the sector are making extremely good returns and we are seeing many single-home operators looking to acquire a second home and many two and three home operators looking to move into three or four homes.  

Whilst they all manage their homes very well and are involved on a day-to-day basis, the common principle shared by all of our successful operators is that care always comes first.  Coupled with good management skills and recognising the importance of key staff, from a care, operations and financial point of view, means that these homes give extremely good returns.  

None of this should be a surprise as this is not specific to the care sector.  It is all about good business management.  I do feel that because of the number of statistics that are made available to the sector it is very easy for people to over analyse and sometimes forget the core basics of running a successful business.  

Undoubtedly good operators will be looking at private fee payers or top ups rather than simply relying on local authorities and there is no doubt that local authority fee income is struggling to keep pace with increased wages, particularly following the impact of the National Living Wage (NLW).  That said, every operator that I have spoken to about the NLW have all agreed that it is a good thing and you cannot deny that there has been a shortage of good staff entering the market place.  

At the other end of the spectrum, some of my larger groups are faring very well. The emphasis here is on good senior management to back up the entrepreneurs, and operators who insist on quality care, quality management and ensuring that occupancy levels are well maintained.  

We often read about some of the larger groups suffering.  There is no doubt that there has been a massive level of growth, most likely without the correct infrastructure in terms of senior management, which ultimately leads to low occupancies and therefore difficulty in servicing debt levels.  My own view about this is always the same: whether large or small, a business has to be well managed and growth for growth’s sake is a very dangerous strategy.  

There has, over the last ten years, been a massive push to lend into the sector, which has seen larger and larger groups emerging and indeed larger and larger properties being developed.  Whilst this still seems to be the ‘sweet spot’ for many banks and operators at group level, there is still a need for a cross section of operators in all locations.  I strongly believe that more emphasis should be put on demographics by people looking to acquire, rather than just acquiring for acquiring’s sake.

Our operators who perform well also have a good relationship with the CQC.  Whilst they admit that there are times when the CQC causes them difficulty, successful operators always look to work with, rather than against, the CQC.  

The same also applies to their relationship with funders.  Currently some of the banks who are retreating from the sector are the very same banks that lent significantly to operators between five and ten years ago.  This was often, in my opinion, without carrying out not only the necessary financial due diligence but also full due diligence into the management of said businesses.  

As you would expect banks that were not lending massively five to ten years ago have now moved into the market place.  We are still seeing a huge appetite from several banks to lend to successful operators with the correct vision and management structure.  In fact, we have completed three sales/acquisitions in the last month, with another two to be completed in the next few weeks, so we are not seeing change of any significance.

What is certain is that with an ageing population, care provision is a major worry for the future and requires a major overhaul.  We have to accept that those people that can afford to pay for their own care will have to and it would be wonderful if someone in Government would be strong enough and brave enough to actually make a clear statement that this is the case.

In conclusion, despite the negative press that seems to constantly surround the sector and despite the fact that it does have its own specific issues, a good sound business, run on sound business principles, will survive and prosper and we should all keep sight of that fact. 

Colin Peacock
Specialist Business Advisor and Accountant to Nursing and Care Homes