Futureproofing Care Homes by Investing in Financial Efficiency
By Chris Bristow, Real Business Rescue (www.realbusinessrescue.co.uk)
Care homes must invest in ramping up the efficiency of company operations to build a resilient business that’s able to stand the test of time. Investing in financial efficiency can range from streamlining company operations to reduce excessive spending, updating systems to increase operational efficiency and unlocking funds from areas of the business to offset rising costs.
Maximising the funds available and ensuring they sufficiently cover running costs can reduce insolvency risk, as more care home insolvencies are being fuelled by financial distress. During this period of significant economic change, care homes must seriously consider how to offset rising costs, such as higher energy bills, Employers’ National Insurance Contributions and National Living Wage.
Chris Bristow, a business health specialist at Real Business Rescue, looks at the integral role of managing company finances efficiently to stay in robust shape.
Fostering financial efficiency to strengthen financial footing
Business streamlining is a powerful exercise, albeit one that is often underestimated. It involves rigorously assessing how much cash is pumped into a business, how efficiently the funds are used, and whether there is excess cash available to be redirected to areas most in need. Business streamlining is an invaluable exercise for care homes at different stages of their lifecycle and regardless of their financial position – distressed or non-distressed.
Business streamlining, also known as business restructuring, is a highly tailored process with no one-size-fits-all solution.
It can be broken down into a range of exercises including:
Contingency planning – This prepares your care home for unexpected events that could threaten company viability, such as legislative, regulatory or taxation changes. Contingency planning consists of preparing your care home for any reasonable eventuality to protect business value and ensure care continuity. This can also provide peace of mind to stakeholders and service users in the event of a business sale or change in ownership.
Corporate simplification – Businesses can sometimes have overly complex operating structures which can result in unnecessary expenses, duplicate costs and additional financial reporting responsibilities. A simplified structure can help the company run efficiently while incurring minimal costs.
Debt restructuring – If company funds are tied up in debt repayments, resulting in reduced working capital and cash flow, this will gradually impact the overall financial health of the company. Debt restructuring must be considered to reduce the financial burden on care home providers as they continue to clear debt backlogs from the pandemic and absorb higher labour costs. This focus is particularly crucial as more care homes feel the pressure to invest in company operations to meet the evolving needs of service users. The long-term vision of care homes is also worth considering given the ageing population.
According to parliamentary research, 27% of the UK population is expected to be aged 65 or over by 2072 based on current trends. As this indicates rising pressure on health and social care services, care homes must formulate a long-term survival plan to ensure that resources are consistently replenished.
Dissipating the stigma surrounding insolvency
The reputational damage caused by insolvency can damage customer bases and supplier relationships while breeding job uncertainty among employees. By seeking professional insolvency advice early, care homes can avert potential insolvency and secure a lifeline tailored to their circumstances.
