All you need to know about running a successful care home


Sector Developments

The care home sector experienced large growth in the 1980s and 1990s as the number of elderly people requiring care increased. As public sector provision declined, the private sector expanded to meet demand. Large companies moved into the industry and care homes got bigger as businesses sought ways to increase profits.

However this growth, which continues today, is proving problematic for those working in the industry. As their financial resources have become more stretched, local authorities are increasingly looking for ways to reduce the price of care provisions. Cost cutting includes offering more domiciliary care (care in patients' own homes) and also imposing tough limits on the amount these authorities are willing to pay for residential and nursing care.

The housing market slump in 2008 also caused a number of additional funding problems. Those people who had made the decision to fund their nursing home costs through the sale of their own property discovered that the reduced house prices significantly lowered the amount they could afford to spend on care home costs. High inflation caused an increase in fees meaning that care homes became much harder to afford.

The Local Market

It is most likely that residents for the proposed care home will come from the surrounding region. It is therefore essential to be aware of the number of other regional care homes which may offer a similar level of quality and service.

Local directories and advertisements should give a deeper insight into care homes and the services offered by them. It is important to visit the homes in the area to find out if they're upmarket and smart or shabby and run down. Some local authorities will try to cut costs by offering the lowest level of acceptable care and a minimal range of services. Do not ignore these nursing homes as during times of economic hardship, they may prove to be the largest competitors in the area.

Local authorities also sometimes have an 'approved providers list'. If so, registering for the list may prove beneficial in order to increase the visibility of your new care home as well as the trust among potential clients.

Cash Flow

Income will most likely stem from either residents' private funds or state funds which are covered by the local authority or the NHS. Usually fees are paid for in advance but take into consideration that many local authorities will prefer to use their own payment schedules.

When preparing cash flow, estimate how much fee income is expected over the next twelve months and when it is likely to be paid. After completing thorough market research into local competitors, decide what the fee rate will be. Furthermore, ascertain how many residents can be accommodated at any one time – 20 places are typical for a privately owned residential home but the figure can double for a private nursing home. Be realistic about the number of places you expect to actually fill at any one time.

Setting the rate

Although the care home sector is highly competitive, fees will predominantly be governed by the standard rate already in place within the local area as well as the quality and number of services offered. In many cases, the going rate will be the maximum amount that the local authority pays into particular levels of care. Bear in mind the amount needed to cover all operating costs whilst also making allowances for an acceptable profit margin.

Market research should help identify competitors' pricing structures in addition to providing a breakdown on the facilities they currently offer. It should also reveal whether there is a demand for a more upmarket service from clients who can afford to pay additional fees.

Ensure that your costs are set out as clearly as possible for residents and if they rise, that clients are aware of all changes and additional charges. A recent report by The Office of Fair Trading recommends greater clarity, simpler fee structures and more information for the elderly when it comes to care homes.

Buying an existing business

Taking over an existing care home can significantly reduce the costs often associated with new builds or extensive renovations and essential items such as catering facilities will be in place. By adopting this approach it will mean that income will be generated immediately.

Before purchasing an existing care home, undertake extensive research looking specifically at why the property is for sale as well as how much profit is currently being made. It could be a reason such as the owner wanting to retire, but it is important to beware purchasing a care home that in the past has struggled to generate profit for its owner. Ask an accountant to examine the business accounts for the past three years as there may be room for negotiating on the asking price.

Stay up to date

Keep up with any sector developments by joining an official trade association such as the Registered Nursing Home Association (RNHA) or the National Care Association (NCA). Subscribing to a journal or newsletter is another way of keeping abreast of any industry news, including 'Caring Times' and 'Community Care Market'.


The care home industry is competitive and also frequently under fire from both the media and government alike. However, through careful financial planning and most importantly by making certain that standards are kept high and residents are well cared for, it is possible to start up a successful business.

Click here  to download the sector guide.

Content provided by Santander for The Guardian.