Businesses that look after the elderly or infirm are predominantly based on high-cost employees and are at risk of the very high costs and inflexibility of employment. Quite often the wages and employment cost of these businesses are 60% plus and the greatest overhead.
Employment costs have crept up over the last few years with increases in employers National Insurance, holiday pay entitlement, and the minimum wage. The new workplace pension rules have added further costs to employing staff. It is as if the Government is trying to push all the social costs of employment onto the employer to save the Government money.
All of these costs can only be added onto one person – the final customer or end-user of the service.
Care homes and nursing homes have the added risk of this expensive overhead of wages and this may mean that a home only makes a small profit once it gets to 90% plus occupancy. If several residents leave or pass away in quick succession it can leave the home losing money very quickly. Another issue may the local authority who if they are suspicious of problems in a home can stop it taking on new residents or close it down altogether.
I have dealt with many nursing and residential homes over the years and they are not easy to deal with. The conversation with the local Council goes something like this “We have run out of money and can not afford to pay the staff or pay the food bills this week so are having to close immediately” to which the Council often replies you need to give us three months’ notice. With no funds, this is impossible and gives tremendous problems for the families of loved ones and the local authority.
Quite often the main asset of the care home will be the building they are in which can not be sold quickly. The banks do not like lending money either to a business losing money.
The common solution is to accept liquidation and closure is inevitable but get the council/Local Authority to advance funds to allow the staff to be paid and this gives time for a more orderly wind down. We have dealt with several care homes on this basis. Local Authorities tend to take a call from us about the seriousness of the situation much more seriously than from a homeowner.
As with care homes the wage cost is the largest overhead, and this can represent 80% of turnover. If an agency gets behind with PAYE it can be almost impossible to catch up. We can help with a range of innovative financial solutions such as a Voluntary Arrangement or a pre-pack Administration to keep the business going.
In the event of a more organised closing down it is worth noting that the government redundancy fund will pay out arrears of wages to employees (up to 6 weeks), unpaid holiday pay (up to 6 weeks), notice pay and redundancy. The figures the Government pay out are increased annually.
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Licensed Insolvency Practitioner