RBR Advisory is a specialist advisory boutique providing a proactive, hands-on and innovative approach to supporting all types of stakeholders across a wide variety of sectors. Utilising the extensive capabilities of our domestic teams as well as the eight specialist firms around our international network, we can advise UK and international healthcare clients facing strategic, financial and commercial challenges in order to protect and enhance their enterprise value.
We are regularly engaged by corporates to provide Independent Business Reviews in relation to the healthcare sector. IBRs we have carried out and advice provided in relation to care homes range from single independently owned entities with available beds of 40 and bank debt of £2m to large, complex group structures with available beds of 4,500 and bank debt of £150m. Our Group has also acted in numerous formal trading insolvency processes in the care sector, managing reputational risks and key stakeholders.
Industry Experience
Through this extensive experience, our team of healthcare specialists have been able to continually improve their knowledge of the sector and are fully conversant of the challenges the social care sector is currently facing, such as:
Operational
- Decline in occupancy as family budgets are squeezed along with a reduction in Local Authority (LA) referrals.
- Limited scope for fee increases and greater reliance on domiciliary care.
- Difficulty maintaining minimum standards of care while controlling overheads, with key challenges being growing wage costs and increased fuel and food costs.
- Owners/managers of smaller homes fail to align lifestyle costs with declining trading results.
- Increased reliance on agency staff due to difficulties recruiting and retaining quality staff.
- Weak accounting systems and controls.
- Old buildings needing conversion to attract private residents, hindered by low capital expenditure budgets, which impacts on occupancy levels and competitive advantage.
- Increased regulatory compliance requirement when not managed results in breaches of standards.
- Lack of investment in training for now and the future.
- ‘Ghost’ residents and bed blocks as a result of poor care, thus causing distress.
Financial
- Refinancing is subject to tighter lending criteria e.g. heavier discounting of market values of properties, higher occupancy covenants.
- Groups are highly geared and have to seek debt restructuring, following decline in EBITDA(R) and property valuation.
- Bank loan covenant breaches e.g. Loan to Value, interest cover.
- Hedge/swap redress delays which impact on cash flow.
- HMRC creditor arrears as a result of poor financial management.
Income
- Providers diversifying into Learning Disabilities care to maximise income opportunities with high cost and care implications.
- Mix of income is weighted in favour of Local Authorities versus private clients causing lower revenues and greater pressure from overheads.
Strategic
- Complex structures, for example, offshore entities acting as operating companies or property holding companies.
- Property development needs to be planned for in terms of occupancy management and the financial implications on the business (e.g. debt, capital expenditure, staffing) and the ultimate impact on existing service users.
Cash Flow
- Cash management obstacles (e.g. Local Authority receipt terms, supplier payment terms, banking facilities versus working capital cycle).
- Operators focusing on profit and not cash where timing adversely affects the cash cycle leading to mismanaged decisions.
- HMRC and trade creditors stretched to support shortfalls in working capital.
- Creditor ‘stand still’ and Time to Pay Arrangements/negotiations required to support short term cash flow.
Care
- CQC compliance visits failed and operational improvements required to meet expected standards.
- Have both an operational and financial plan to deliver necessary change to be compliant.
- Achieving acceptable levels of care compliance.
- Securing and maintaining a competent home management team.
- Procuring qualified care staff, especially nurses.
- Motivating a low paid workforce sector.
- Fit for purpose properties and continuing level of re-investment.
