The Cost of a Running Children's Care Home
Running a children’s care home can be a profitable private venture, but one that requires significant funding to get started.
The private children's care home sector is at an all-time high in terms of growth and profitability. As the social care sector fails to meet the demand for safe housing for young people, it’s down to private companies to offer quality care and accommodation to vulnerable children.
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Not only does operating a children’s care home present a chance to do something positive in the community - but it also promises significant profits. In the UK, the top 20 private children’s care homes are generating around £250m per year and 78% of all children’s care homes are run by private firms. The cost for a child’s place in an independent private care home was roughly £4000 per week in 2018/19, which shows prices have risen by 40% since 2013.
While the government might be calling for private companies to make their placements more affordable, the reality is that private care is the only place for many troubled children due to a myriad of factors. This certainty of demand makes running a children’s care home a reliable, profitable investment for those willing to take on the risk. In this case, risk comes from the costs involved with establishing the property, creating a reliable procurement process and managing the budgetary considerations of staffing and care.
Some children who have especially complex needs will also require a higher standard of care. For some care providers, this represents an opportunity to generate higher profit - provided you invest suitably in the staffing and equipment required to support a vulnerable child or young person.
However, establishing a children’s care home is not a simple task. From sourcing premises, outfitting the building, acquiring staff and budgeting for general day-to-day care, there’s a wide range of costs involved.
Here at Rangewell, we offer independent finance brokerage for those looking to open children’s care homes and other care-sector facilities. We are experts in the field and will be a helping hand for you throughout the process - from guiding you through estimated costs, growing your care home business and creating a business plan through to helping you apply to the right lenders to maximise the value of your investment and reach your goals.
Get in touch now to discuss your plans, or read on to find out more about the costs of children’s care and why you’ll need significant investment to get started in the social care industry.
The real cost: time
The first thing you must account for, however, is the time required to pursue the regulatory arrangements required for registration. The care home sector is extremely robust in terms of safeguarding and requirements - with applications often delayed for weeks or months.
As you plan your business and begin to make property enquiries, recruit staff, establish supply chains etc, you must remember that you cannot immediately accept children into the home and must await full registration and approval to do so.
Before you even submit your Ofsted application, you must already have a plan for which property you’re going to acquire, whether you’ll rent or buy, planning permission and an initial cohort of staff who have sector experience and a registered care manager. Once you have these things in place you can begin your application which takes
Ultimately, this means you need a significant capital stack that is robust enough to allow you to begin establishing the business without relying on it generating any income for a number of weeks or months.
The cost of setting up a children’s care home
If you’re considering setting up your own children’s care home, you must factor in the cost of the premises itself. Whether you’re buying an existing residential care home or creating one from the ground up, you’ll need to budget for:
- The cost of the land/building and any associated licenses or leases
- Cost of upgrading/repairing the structure
- Staffing costs
- Food and catering
- Potential upgrades/expansions
With all of these costs factored in, you can then forecast a profit margin. Creating a business plan will help you outline the way that costs align with profit targets - for example by showing that investing in a specialist psychological counselling service within your new children’s home will lead to increased demand and subsequently, profit.
The cost of building a children’s care home premises
You’ll need to decide whether you’re going to build a care home from scratch, which will require funding for a wide range of stages such as:
Most children’s care homes in the UK are, on average, approximately 30 miles from where the children housed there originate. Considering many of the highest social demand comes in cities and towns, that means your care home must be nearby in order to accommodate them.
However, in choosing a more central location, you’ll incur higher costs for land or disused property to convert. Choosing something more rural means you’ll see less demand from local authorities.
For locations in cities or other costly areas, a rental agreement may be preferable to the price of purchase, provided your financial forecasts see profits exceeding any rental costs.
Your contractor of choice will impact your overall costs. Most lenders will have their own recommended contractors for construction projects as they want to secure their investment and ensure the team is trusted.
Any construction project requires materials and you’ll need to account for them if you’re building from scratch or expanding/renovating existing premises. Particular care should be taken around insulation and accessibility measures as these will be highly relevant to the children you care for.
Most children’s homes are, at a minimum, 4-bed properties that are spacious enough to accommodate children who may need specialist equipment nearby.
- Site and legal fees
Property construction projects are costly not just through the practical element of building - but through the added costs associated with legal requirements and the site itself: housing for site workers, crane hire etc.
With all of this considered, even the most modest construction project will range beyond £1 million.
The cost of buying a children’s care home
Let's talk about care home costs. With the costs of construction considered, many owners may instead opt to buy an existing property that is either already a care facility or one that can be converted. However, this isn’t cheap either - as there are specialist requirements to account for.
A suitable care property is one that is of the right size (generally 4-5 bedrooms), is located in the right area and will attract minimal objection from the local community (complaints centred around antisocial behaviour are common).
The average price of a four-bedroom house in the residential market is, according to Rightmove, £291,618. That’s solely for residential use and doesn’t account for the upgrades you’ll need to invest in to make it suitable for use as a children’s care home.
Buying an existing care home is a good alternative if you can find the right opportunity, as most come with staff already accounted for and are registered with Ofsted - minimising the time it’ll take to begin generating profit. You can often come on board and add value by upgrading facilities or inspection ratings.
Upgrades and renovations are now a staple part of the expectations placed on private care providers by local authorities. The Competition and Markets Authority indicated that many children’s needs were not being met - so investment will be required if you want to avoid public scrutiny and provide a higher standard of care to attract future placements.
Whether you’re seeking a commercial mortgage or more specialist renovation finance, you’ll need a lender that supports your aims and understands the value of the investment. That often means more specialist lenders who know the care sector rather than mainstream banks. These may be financed through secured lending or a mortgage.
In most cases, contacting your finance broker earlier in this process can help you make the right decision over buying versus building the children’s care home. At Rangewell, we know the lending market inside and out so can help you understand the advantages and disadvantages of choosing to build or buy and how it will impact your funding requirements and the chance of success. Get in touch to find out more.
The costs of staffing your children’s care home
Care staff in children’s homes require, at a minimum, to have an appointed registered care manager who meets Ofsted’s requirements. Salaries for this role are, on average, around £41,000 per annum. Support workers receive around £22-25k on average.
In addition to care workers, you may also need to pay salaries for part-time roles such as a caterer, entertainment planner, facilities manager/caretaker and other staff. This will depend on the facility you intend to run and will need proper planning to decide on.
Staffing is the area in which you should expect costs to be higher - the care team are those at the forefront of challenging issues and are the day-to-day representatives of your business who will be responsible for child safety, satisfaction and regulatory compliance. Invest in quality care staff and you’ll generate profit as a result of a better level of care that lessens complaints and issues.
ICHA’s ‘State of the sector’ report in 2020 showed that smaller care homes tend to find higher levels of staff turnover, so it would be wise to budget for additional recruitment expenses if your home is smaller. Overall, ICHA’s report corroborates our claim above: staff are the most significant cost in your children’s home and will be responsible for the biggest impact on profit margins. In the survey, respondents overwhelmingly agreed that staffing expenses were the highest portion of their costs.
In the same report, many of the providers surveyed mentioned that a rising source of staff costs and a need for investment came from extra training provided to care employees - often to degree and master’s degree levels. These investments are only possible through trustworthy funding or from profits you’ve already generated - though as a new care home owner you would require funding as your home won’t become profitable until it’s up and running.
Equipment funding for children’s care homes
Children’s care homes have equipment needs that go beyond standard furniture and fixtures (though you’ll need to provide them too.) You may need specialist equipment to support certain disabilities and educational needs. To fund these, you’ll need to arrange asset finance through hire purchases or leasing, or simply buy the equipment outright.
In 2020, ICHA’s report found that the majority of investment efforts from current care providers was towards either capacity increases (which means incurring the costs we detailed in the building section) or, more pertinently, to quality assurance or IT systems to improve outcomes. When regulatory inspection ratings are so vital to success, investing in IT equipment and increased safeguarding measures such as CCTV can really help lower incident rates.
General bills for care homes
Like any property, you’ll need to provide adequate heating and power to the care home. In many cases, children’s homes will incur greater expense than a regular domestic let or similar because of the nature of some disabilities and the specialist equipment required.
According to ICHA’s 2020 report, occupancy rates are on average 86-95% which means most children’s homes are almost full and will require heating and power in every room. All children’s homes must also offer adequate washing or bathing facilities to each resident, so hot water bills will be higher than average domestic properties.
The children in your home are your responsibility and just as you must provide accommodation and care, you must also provide quality nutrition. While food costs will vary wildly depending on what supply chain agreements you can make, you must budget for both the cost of the food itself and any catering required.
Insurances are vital to children’s care homes and without them, you wouldn’t be able to operate. They are in place to protect your business, your employees and the children you care for and are crucial to the successful operation of a private home.
The importance of insurance in the care home sector often necessitates a more bespoke approach where a provider will investigate your business and identify the threats you need insurance for. This can be a more costly approach but one worth investing in - especially for new owners who have limited prior business experience.
The cost of running a profitable children’s care home
Taking all of the costs we’ve mentioned, there are significant challenges in place for new owners before you can generate profit. But even once you have achieved registration and admitted children into your facility, you still need an idea of what ‘profitable’ looks like. Luckily, we’ve taken a dive into the data for you:
To reach the reported 23% profit margins that the CMA claims private companies achieve, your residential care home’s costs must be manageable against the average £3830 per week per child.
As an example based on those figures, a 4 bedroom property would generate £61,280 per month. In that example, your costs must therefore be no more than £47,185 to achieve that earlier profit margin.
Investment for funding your children’s care home
The costs involved in running a children’s care home show the importance of adequate support from investors. The majority of independent children’s homes in the UK fund new expansion through either existing profit or third-party investment, such as private equity firms - but for new providers who are just getting started, the only real option is applying to lenders.
When you’re creating a lending application, not only do you need to understand the existing lender market, but you also need to tailor your application to the specific expectations of the lender.
At Rangewell, we help everyone from care workers who want to take the step into ownership through to groups who want to fund a new children’s home construction project. As an independent broker, we are able to access the whole of market to match you with the right lenders who can support your goals. Considering the specialist nature of the care sector, you’ll need a certain approach to secure the funding so we’ll also help you tailor your business plan and application.
In a profitable sector that is coming under increased public scrutiny, you can’t afford to risk underperforming in certain areas. You’ll need a care home finance package that can support not just the construction or purchase of the facility, but one that leaves capital remaining to invest in equipment, staffing and care.
If you’d like to learn more about starting a children’s care home business, you can read our full business plan guide to get an understanding of the elements you’ll need to take into account when setting up the business and applying for finance.
Alternatively, get in touch with our team today to discuss your ambitions and see how Rangewell can help make the investment stage easier regardless of what level of capital you have.