17/11/2022 16:00:00
When your care business is struggling, especially if the regulator has given it a low rating, you may decide you'd like to explore selling it. Whilst some things are the same when you sell, regardless of the health of a business, there are some key differences. We'll explore those differences and how this might impact your business and your decision.
When a business is in distress, even with full accounts, a view is likely to be taken as to its market value. How the business is operating, what problems it might have and what the future might reasonably be expected to hold, all contribute to the value assigned to it. Here are some of the things to consider:
Income
Has it dropped? Can it recover? What investment might be needed to maximise recovery in the shortest timeframe?
Costs
What are the likely costs of improving the business? Would engaging with a consultant help address any issues?
Staffing
Does the business have enough staff? Are they the right people?
Compliance
Care homes with ratings of Requires Improvement or Inadequate fare less well than those with a rating of Good or Outstanding
Environment
Does the property need capital investment or a high level of repairs and renewals that cannot be funded through cash flow?
All of these factors are pieces of a jigsaw puzzle that help to form the bigger picture of the home, its viability and likely open market value. In the case of a distressed business, the reasons for the current situation would need to be fully understood. It may be that the home could improve its fair maintainable trade (FMT), but there may be a significant gap between FMT and the current position. Some key areas for consideration when calculating FMT are:
Occupancy
Obviously, occupancy is a key factor, along with the main cost a home has; staffing. If occupancy is in a temporary dip, understanding the reasons for that helps to determine if the issue is short term or longer term, and what impact that has on the business. Rooms cannot be easily added to a property, and a home carrying a high number of vacancies would do better to focus on filling those rooms before adding more, but it may be possible to improve rooms, by adding en-suites where possible. However, there are costs associated with these improvements and if a home already has limited funds, covering basic running costs has to be the priority.
Staffing
By far the biggest expense for any care home, staffing can easily overstretch a business, especially if agency is needed to fill roles. The impact of increases in the minimum wage affects all staff and not just those on the lowest wage, as wage differentials usually need to be maintained to retain staff in a challenging market.
Utilities
We are yet to see the true effect of these costs, but utilities are an area of considerable concern with rising costs impacting care businesses, who run a 24 hour operation. Are you on the right tariff? Have you shopped around for the best deal?
If a business is in some distress, talking with funders would be the first step in looking for options moving forward. Business restructuring advisors can also be a great help, providing advice on what options are available or how to manage an exit, be that through an operational sale, or a closure.
There are buyers seeking turnaround projects, so engaging with an agent is also worthwhile. As an agent, I've provided viability reports for banks, to help them understand the challenges and the opportunities that a care business might face. This can help an operator make that all-important decision about improving to keep, improving to sell, or selling straight away. However you look at it, knowledge is power.
If you would like to know more about anything in this article, post contact Alison Willoughby on 07879 073195 or alison.willoughby@fleurets.com.