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Insolvency Fears Over Care Homes

careCare homes are increasingly at risk of closing down due to rising costs and a lack of cash, warn insolvency and care homes specialists Bishop Fleming Chartered Accountants.
A recent BBC Radio 4 survey revealed that unless new cash was injected into the care home sector by local authorities, many beds would have to close to the elderly and infirm.

More than a quarter of UK care homes are in danger of closure within the next three years, according to the BBC survey, reflecting a rising trend of care home operators closing their doors due to pressures such as the National Living Wage, pension auto-enrolment, restrictions on migrant labour and the increasing costs of inspection and regulation.

Top 40 accountants, Bishop Fleming, with specialist insolvency and care home teams, are warning that care homes in trouble need to take advice about their options before it is too late and they become another statistic. Nearly 50 care homes went insolvent in 2014/15.

The BBC research also revealed care homes were carrying too much debt and were not making enough profit to cover loan repayments. This has led to many care homes increasingly having to be more creative over how they continue to offer social care for local authorities in the face of increasing pressures on resources. Many are freezing recruitment plans or fundamentally changing their business models to survive.

Head of Bishop Fleming’s care homes team, Tim Godfrey warned: “Although local authorities can levy an extra 2% council tax this year to help pay for social care, this money has yet to reach care homes and may not get there at all where cash-strapped local authorities have more pressing financial priorities.”

“It is arguable as to whether the 2% rise in council tax is enough anyway,” he added.

Jonathan Williams, a partner with Bishop Fleming and a licensed insolvency practitioner, echoed Mr Godfrey’s words, adding: “Where a care home is struggling but seeks advice sooner rather than later, it is possible to devise a rescue plan that will enable the care home to carry on trading. With increasing staff costs – particularly with the final roll-out of auto-enrolment pension obligations – it is critical that businesses have accurate accounting and forecasting information. At a time of static or possibly falling revenues, care homes must be sure that they have sufficient funds to meet a growing cost base.”

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