Unlike many industries, care homes have continued to operate throughout the pandemic, meaning there has been no respite for staff or owners during an extremely stressful time, both physically and also financially. Keeping up staff and resident morale in light of increasing fear and uncertainty has been a challenge for care homes in itself, however, there are also financial challenges which are still being faced.
As all staff have been required to work, care homes have not been able to take advantage of the government’s furlough scheme which has helped many businesses reduce costs during these challenging times. In fact, care homes have seen their fixed costs rise, putting additional strain on an already stressed industry.
Keeping the virus out of care home settings is crucial. In order to minimize the possibility of COVID-19 being brought into a residential care home or nursing home, various measures have been implemented when it comes to staff and resident safety. From increased PPE, more stringent cleaning processes, and regular testing of staff to ensure they are free from the virus, care homes are taking all the precautions possible to protect their vulnerable residents.
Despite the need for these enhanced protocols, they do not come cheap. Care homes have seen their operating costs rocket as additional PPE such as masks, visors, and gowns, has to be sourced and regularly replaced, while mandatory testing of staff and the need for them to isolate if they test positive or display symptoms, means many care homes are having to turn to expensive agency staff to cover employees’ absence periods.
Compounding these financial pressures is falling income as resident numbers dwindle. This has happened due to a combination of the virus causing higher than average rates of death amongst care home residents, as well as a growing lack of confidence from potential residents’ families who are worried about the safety of placing their relatives or loved ones in such an environment.
If you run a care home and have found the past year to have been particularly challenging, you may be considering placing your business into liquidation. Voluntary liquidation is done via a formal insolvency method known as a Creditors’ Voluntary Liquidation – or CVL. It is a director-initiated process which brings about the end of an insolvent company.
Before any company enters liquidation, they must seek expert help and advice from a licensed insolvency practitioner to ensure this is an appropriate step for their business. However, when it comes to liquidating a care home, a place which cares for some of the most vulnerable individuals in society, extra caution should be exercised.
Liquidating a care home does not just impact the directors of the company and its outstanding creditors, but also the lives and living situation of many elderly or unwell residents. Your insolvency practitioner will be able to talk you through the entire liquidation process, ensuring you know exactly what it means for you, as well as your staff and your care home’s residents.
If your care home is experiencing financial difficulties, yet you are keen to see whether the business can be turned back around, we will explore all the options open to you and your business in order to minimize any disruption to your care home and the residents who call it home.
As a problem which affected companies up and down the country, the government introduced a range of measures to help support businesses during the COVID-19 pandemic. One of these was a selection of government-backed loans which could be used to help companies sustain its operations while the pandemic was ongoing.
These loans are offered on extremely competitive terms, and can be paid back over ten years, with security given by the government. Depending on the size of your care home and the amount of money you require, you can obtain this type of funding either through the Bounce Back Loan scheme or the Coronavirus Business Interruption Loan Scheme (CBILS). As part of the Pay As You Grow initiative, which was announced after the loan schemes were introduced, additional support is being given to those companies who find themselves struggling to pay back what they have borrowed.
While these loans are undoubtedly very competitive in comparison to a standard commercial loan, you should still think extremely carefully before signing up for one. For some care homes, the financial boost provided by such a loan will be enough to set their finances back on track while the business adapts to the additional operating costs which are being faced during COVID-19.
However, for others, a loan like this will simply serve to push the problem forwards a few months, while the money is exhausted servicing basic running costs and employee salaries. If you believe your care home needs more than a one-off cash injection in order to survive, taking advice from a licensed insolvency practitioner can help you understand all of your options as well as ways to save your business which you may not have considered, or even known existed.
Anthea’s residential care home has a reputation for providing quality care and exceptional living conditions for the 45 residents who call it their home.
Over the years, the care homes overheads had steadily increased, and although residents fees had been inflated at intervals in order to compensate for this, it had reached a point where the care home was in danger of losing residents due to the escalating costs to residents and their families.
The care home began to fall behind in its financial commitments, and when the COVID-19 pandemic caused staffing costs to increase further, something had to be done to rebalance the books.
Anthea contacted her local Real Business Rescue insolvency practitioner to better understand her options. It was decided that a CVA was the best option, allowing the business additional time to repay its existing borrowings, while also providing an opportunity for opening up negotiations with the landlord about the current lease. Rent on the building the care home operated from was by far the biggest outlay for the business, and this was a cost which had steadily increased as the years had gone on. It was determined that if this liability could not be reduced, the care home didn’t stand a chance of continuing over the long-term.
Working with Anthea and her landlord, we were able to renegotiate the existing lease agreement, saving the care home vital money throughout the remainder of the 20-year lease. Although the landlord had to take a cut to the quarterly rent being charged, they benefitted by retaining the care home as a tenant, something which would not have happened if the business was forced into liquidation should it have continued to trade at a loss.
Throughout the implantation of the CVA, the care home continued to operate as usual, meaning no disruption to the care provided to residents was experienced.
Even if you no longer want to continue operating your care home, there may be someone out there keen to buy your business off you and take over running it. This may even be the case if your care home is financially distressed and currently losing money.
The ability to sell your care home will be greatly improved if you can demonstrate previous healthy profit margins, as well as a reputation for providing quality patient care. The desirability and value of your care home business will also be increased if you own key assets such as the building the care home operates from.
Selling you care home could not only allow you to walk away with some money, but it could also be the best outcome for your employees and residents. Selling your care home as a going concern will reduce the disruption caused when you leave the business. If the sale is handled well, a smooth transition between yourself and the new owners could provide reassuring continuity to those associated with the care home including staff, residents, and their families.
Despite this, selling a business – particularly one which is financially distressed – is a tough ask at the best of times, never mind in the midst of a global health and economic crisis. Real Business Rescue has an in-house corporate finance team who can help you through the whole transaction process.
Not only can we ascertain whether your care home is worth selling, but we can also help you obtain an independent valuation, market the business on your behalf, and support you through the entire negotiation and all-important due diligence process. Not only can this help ease the pressure and burden on you, but can also allow you to sell for the best price to a buyer who is not only serious about buying your care home, but is proceedable too.
If we do not believe your business is likely to sell on the open market, our licensed insolvency practitioners can discuss your options for either closing or rescuing the business depending on its financial position and your desire to continue operating.
If, like many care homes up and down the country, your business was doing well before the COVID-19 pandemic hit, there could be a number of ways which your company can move from the red and back into the black. Liquidation is far from the only option for your care home despite its current financial problems.
If your company has fallen behind in its obligations to creditors – including HMRC – entering into a process of negotiation with them could help lower the financial burden you are feeling on a monthly basis, giving you the chance to get your cash flow back to healthy levels. Creditor negotiation can be done on an informal or a formal basis, and your approach will likely depend on your existing relationship with your creditors, the amount you owe, and whether or not you have already fallen into arrears.
For those care homes who are indebted to HMRC, one options which can be explored is entering into a Time to Pay (TTP) arrangement. Although TTPs have been available to companies in tax arrears for some time, the government have promised that they will apply a less stringent criteria to these arrangements during the coronavirus pandemic, in order to allow more companies to spread their tax obligations over a longer period of time.
If your creditors are numerous, however, a TTP which just covers money owed to HMRC, may not be enough. In these instances we can look at a range of different formal insolvency processes such as placing the company into administration, or else implementing a legally-binding payment plan with outstanding creditors.
This type of formal creditor negotiation is done through a Company Voluntary Arrangement (CVA). A CVA typically lasts for between 3-5 years, during which time the indebted company is permitted to make monthly repayments towards outstanding debts at a lower rate than what they were previously paying. In some instances, debt which cannot be fully repaid will be written off at the end of the agreement so long as the company has adhered to the plan and made the agreed payments on time and in full each and every month.
A CVA will be administered and supervised by a licensed insolvency practitioner throughout the term of the agreement. The company in question will make their monthly contribution directly to the insolvency practitioner who will then distribute this amongst creditors proportionately.
While a CVA may sound like the perfect way of lessening your care homes outgoings, you will only be able to enter into a CVA if your care home is seen as viable by both the insolvency practitioner and also your company’s creditors. If your care home is experiencing more acute issues and your creditors have turned hostile, it may need to be placed into administration if it is to be saved.
Once your care home is in administration, it is granted certain legal protection through a moratorium which prevents the company from being perused legally and ensures the business cannot be wound up by creditors at least while the company remains in administration.
What many people do not realise is that administration is not a solution in itself; instead it functions more as a holding stage while a route forward is plotted. Administration can help save a struggling business, but going into administration does not always mean that the company will emerge positively. The appointed insolvency practitioner – acting as the company’s administrator – will assess your care home and its future prospects as part of the administration process, before advising you on whether the care home can be turned around.
If your care home is registered as a limited company, there is a good chance that as well as being director of the company, you are also seen as an employee of the business too. In the event of your care home becoming insolvent and having to enter a formal liquidation process such as a CVL, you may be entitled to claim redundancy.
Whether you qualify, and the amount you may be entitled to, will depend on a host of factors including how long you have worked for the care home, your age, your salary, and whether you are on the PAYE payroll.
At a time when your business is in danger of being liquidated, you may also be struggling with personal financial worries, a redundancy payment could be a huge lifeline. As well as redundancy, you may also be entitled to claim for additional statutory entitlements such as unpaid wages, holidays, and arrears of pay.
As part of the liquidation process, your appointed insolvency practitioner will be able to refer you to a fully regulated claims management firm who can help qualify your entitlement to claim.
13th May 2021
The government and HMRC have issued a warning to businesses to be on the lookout for operators within their supply chains who may be committing fraud via the use of mini umbrella companies.Read More
12th May 2021
The British Retailer Consortium (BRC) is arguing for the creation of a new arbitration process to help find a solution to the issue of billions of pounds being owed.Read More