Industry sector:

Care home: Buy an existing business

Opening a new care home can mean building it from scratch. Alternatively, if an existing building - for example a large old house or hotel - is to be used, it will generally be necessary to completely gut it and carry out extensive conversion and refurbishment work. This can give you the opportunity to make sure that your new care home includes the latest facilities, meets the latest standards, runs as efficiently as possible and is highly attractive to would-be residents. However, new build or an extensive refurbishment is generally a costly option.

You might decide to buy an existing care home business rather than start your own venture from scratch. Buying a going concern can mean that:

  • the premises and equipment are already in place
  • there are established residents
  • a reputation has been established - among the local population and with local authorities
  • there is an existing business relationship with the local authority
  • the business can generate income immediately
  • suppliers have been identified and relationships established with them
  • the business has a financial track record which can help if you are looking for funding
  • staff may already be in place

However, look critically at any care home business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up. Look out for businesses where the current owner just can't earn enough in fees to cover costs and make a reasonable profit - you may be confident that you can improve the performance of the business, but make sure you know exactly what you're taking on. Be sure that the care home has not run into financial difficulties as a result of adverse publicity.

Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high.

Other matters to consider include:

  • the state and value of the premises, equipment and so on. Will you have to spend money refurbishing or replacing assets and improving or upgrading the fabric of the building
  • existing staff rights
  • levels of staff training and qualifications
  • how to retain key personnel once you've taken over
  • does the business owe money that you will be responsible for
  • the reputation of the home and its performance in recent inspections (including inspections and ratings by the care regulator as well as food hygiene inspections). Check too for online reviews and ratings from residents and their families - and for any adverse media coverage
  • whether there are any outstanding actions, enforcement orders, unsettled disputes or litigation
  • current and historic occupancy levels - do these appear unusually low and are they rising or falling

Unlike many other types of business, buying a care home very often involves acquiring the building itself (freehold or on a long-term lease). This may well include accommodation for you and your family, so you could be combining a business purchase with a house move - giving you plenty more to think about!

Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs.