Weathering The Storm: How Can Care Operators Cope With Current Challenges?

By Jonathan Dunn, Partner in the Restructuring Advisory team at FRP Advisory (www.frpadvisory.com) and a qualified Accountant and Insolvency Practitioner.

Much ink has been spilled chronicling the challenges facing the UK’s care sector.

Recently, the Care Quality Commission (CQC) released its annual assessment of the state of health and social care in England, with the headline finding being that there is currently a two-tier system at play. As a result, those who can afford to pay for treatment are able access it easily and freely, while those who cannot face longer wait times and reduced quality of care.

This has been underpinned by the inability of local authorities to keep pace with rising costs and the increasing amount of people who need care.

Challenges in the workforce have also worsened in the last year, exacerbated by prolonged industrial action.

There is no doubt that operators are facing a substantial challenge – so what should managers be aware of, and how can they shore up operations in the coming months?

Taking care of energy
As is the case in many sectors, care operators are acutely experiencing the impact of soaring energy prices. Running a home can be particularly energy intensive, especially throughout the colder months.

Providers and customers may be eligible for discounted wholesale gas and electricity prices under the Energy Bills Discount Scheme, which runs until April 2024. However, despite wholesale gas prices beginning to fall, the underlying issue of elevated bills is likely to linger for some time, especially following the recent announcement that the energy price cap will increase in January.

We would advise operators to continue to take regular meter readings to ensure that they aren’t relying on estimated bills and are only paying for what they use. Those who are locked into electricity and gas contracts should also check their contract end dates and whether they need to send a termination notice to switch suppliers.

If your contract is set to end soon, you can start shopping around for the best price available. Armed with the indicative pricing, this information can help inform cash flow forecasting.

We always recommend a 13-week cash flow forecast, which will also take in weekly and monthly receipts and payments, and quarterly payments like VAT, rent and interest charges, to identify peaks and troughs through the period.

Should any shortfalls be identified, management teams will need to carefully review their options and put in place robust contingency plans.

Increases in local authority fees don’t reflect the increase in operational costs, so homes with private residents will be looking to raise their fees to compensate. But ultimately firms must also think long term, with a focus on making facilities and operations as energy efficient as possible.

Skills and bills
The sector is also facing a growing skills crisis. Low wages in the sector have pushed many to find better paid, more flexible jobs elsewhere, and more than a quarter of care workers are aged 55 or over and nearing retirement themselves.

This was an issue even before the pandemic, but there is no doubt that Covid caused many in the industry to re-evaluate their careers.

As a result, many homes can’t take new admissions because of low staffing levels, or have had to turn to expensive agency staff, which is only increasing financial pressures. And although our advice would usually include considering the potential to prioritise staff retention through financial incentives, such as bonuses paid to an employee to stay with the company for a specific amount of time, we appreciate that for many this is not a feasible option.

As a result, it is likely that we may see an uptick in M&A activity in the sector, as firms look to consolidate their operations and benefit from pooling resources. This will especially be the case for independent care homes, which can greatly benefit from utilising the economies of scale bought by merging with a more established operator.

Overseas recruitment will also likely form part of the solution, and recent changes to Migration Advisory Committee rules that allow care firms to recruit from overseas are welcome. However, it’s worth noting that the government’s recent decision to ban care workers moving to the UK using the Care Worker Visa from bringing dependants will likely impact the sector’s labour market further.

It’s been a turbulent few years for the care sector, and many operators will be pleased by indicators that the cost of living crisis is beginning to ease.

Despite this, it’s likely that the difficulties being experienced in the sector will persist in the coming months. Being proactive in forming a plan and building resilience is a sure-fire way for operators to better navigate the market conditions.