Rangewell

How to Start a Children’s Care Home

By Rose Brown
Content writer
Published: 21 February 2022 | Last update: 26 May 20221 minute read
Rangewell

Starting a children’s care home requires significant planning and investment, but can be a lucrative opportunity for private care providers.

Children’s care homes are a rising business opportunity for those who want to combine social good with stable profit.

All the information you need

The need for children’s care is on the increase, but local authorities cannot offer the care required - leading to a rise in private providers. In the UK, around 80% of children’s homes belong to the private sector. 

Profits can be lucrative, with each place in a children’s care home worth approximately £4,000 as of 2018/19 - and prices continue to rise. Like any investment, the main challenges are ascertaining a continued demand for your service - which somewhat sadly, the children’s social care sector continues to offer with no signs of shortage. 3% of UK children are in the care system and around 80,000 are in care. 

For care sector workers who want to become owners or other business people who want to take part in this opportunity, starting a children’s care home can be a morally and financially rewarding process - but one that comes with unique challenges. 

The challenges associated with starting a care home include planning the location and facilities, setting up private companies, recruiting employees, meeting accreditation criteria and passing inspections. In addition, you’ll need a robust children's care home business plan and a means of investment - especially if you’re intending to construct the home from scratch or convert it from a different property. 

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Don’t go it alone

The children’s care sector is heavily regulated and as such, finding investment can be a challenge. At Rangewell, we act as an independent financial broker for the care sector - helping you find the right lender to suit your objectives.

Many commercial lenders will have differing opinions around investing in care property, so having our team on your side to help tailor your applications and even advise on your business plan is a great advantage. 

We’ll help you understand the full buying process. Including the factors that impact your chances of attaining children's care home finance and what interest rates you may expect. We’ll walk you through the considerations that can add value to your project such as upgrading certain facilities or offering a specialist service within your care home. 

Whatever your goal, if you’re seeking any form of financial investment used to build or start your own children’s care home, talk to Rangewell for an independent team of advisors who know the sector inside and out. 

Step 1: Choose an approach

Children’s care homes can be bought or built. By “built”, we mean either from the ground-up (very rare) or converted from an existing building (far more common) - whereas when we refer to “bought” we mean buying a fully-functioning, Ofsted registered children’s home from the owner.

Buying an already established children’s home is similar in process to buying any other operating business. You’ll need to assess their current situation and ascertain if the asking price is worth it against the potential. Remember you can always add new services, upgrade facilities and improve ratings - all of which can increase profitability. You will still need to register with the UK government under the Care Standards Act 2000 and appoint an experienced care manager (more on this in a moment). 

However, buying a care home means you’re limited in what you can actually accomplish. You’ll need to assess the potential value of the investment - whether it’s a freehold or leasehold, whether there’s space to expand, the quality ratings of the staff etc. Despite this, buying one is an immediate means of generating income as it’ll come with employees and even residents. 

The other alternative is to construct a care home of your own. It’s rare to see many operators choosing a full construction project where you buy land and build a home from scratch as it requires too much planning and investment. Instead, most residential homes are created through conversions or upgrades to existing buildings such as domestic homes or HMOs. On average, private children’s care homes only have four bedrooms - so you don’t need a large facility to get started. 

However, you do need to comply with key requirements in terms of facilities and amenities. You’ll need to account for heat, space, natural light and safety - all of which should be part of the building considerations. 

When applying for finance, you’ll need a clear plan of which path you’re taking from the onset - development finance packages are more expensive than buying an existing home, though they can deliver far greater profits and control over the project. In either case, you’ll need a strong business plan to help secure your chance of investment and map out your business. 

Step 2: Do your research 

Once you’ve selected an approach, or even beforehand, you need to research the children’s care industry and understand how you’ll generate profit and run your business in a safe and effective way. To do this, you’ll need to consider: 

Location

Poorer areas have a higher demand for children’s care homes. However, it’s not always a black and white issue - you need to ensure that you balance the cost of property or land purchases against the area’s requirements. You may find, for example, that what looks like a good opportunity on paper is actually already served by multiple competing homes. 

Beyond that, look for facilities or factors that might make your home more appealing to residents and local authorities who choose where vulnerable children in care live. Avoid areas with high crime statistics.

Timing

The time between making a decision to open a children’s home and being able to actually profit from it can be vast - making it an unstable investment if you don’t have the right capital planned. You need to understand your local authority and the lead-in times associated with registration, staffing and compliance. 

Before you can open, you need to hit certain regulatory standards and be able to show you have a team of experienced care professionals in place to present to Ofsted. Once you have these sorted, you can submit an application to Ofsted. You can expect to wait at least 16 weeks before your registration is approved. 

Regulations

You’ll need to know what regulatory compliance factors you must achieve in order to operate a children’s care home. At a minimum, you’ll need to register with the UK government under the Care Standards Act 2000, the Children’s Homes [England] Regulations 2015 and The Care Standards Act 2000 (Registration) (England) Regulations 2010.

Your home will need a dedicated care home manager who has the appropriate experience and qualifications to satisfy Ofsted, as well as a team of staff who have experience in the sector.

Finally, you’ll need to submit your application and complete interviews to ensure Ofsted will grant regulatory approval. Researching all of this in advance helps prepare you for the rigours of opening your home, but also helps you devise opportunities and ensure profitability before you commit to the process. 

Facilities/services

Part of your research process should involve an assessment of facilities and services you will offer. If, for example, you’re buying an existing children’s care home, is there scope to add a new service for disabled residents? If you’re building one from scratch, is it worth your investment to launch a new mental health support unit on-site? Only by doing research can you establish the opportunities to stand out from the crowd and become a local authority’s trusted residential group. 

Step 3: Create a business plan 

Writing a children’s care home business plan is an extensive task, but one that’s absolutely crucial to success. Business plans are essential for attracting investment - every lender will want to see a copy of your plan to assess your eligibility, capabilities and vision for the future. They want to see clear evidence of growth plans that will guarantee a safe and reliable investment for them. 

However, it’s not just investors that will look into your plan. Ofsted will also want to assess the business plan and interview you about factors within it. By doing so, they will be able to tell what level of effort you’ve put into the business and will favour applicants who show a clear commitment to improvement and a high standard of care. 

When creating a business plan for a children’s care home, you’ll need to cover lots of parts of your planned business, but must include at least the following sections:

  • Corporate structure & regulatory requirements - how your business will operate. Remember that in the context of Ofsted-regulated children’s homes, you’ll need to appoint a care manager with the right experience and skills. You’ll also need to outline how you’ll achieve the various expectations Ofsted set for their interview process, including producing a children’s guide, revealing your planning permission etc. Read our full business plan guide to learn more. 
  • Goals and objectives - outline your goals for the business and objectives you have, as well as actions you will take to achieve them. For example, if a goal was to open a new mental health unit you’d discuss the upgrades/renovations required and the timescale involved. 
  • SWOT analysis - strengths, weaknesses, opportunities and threats to your business. Threats generally fall into competitors, but there are other threats too such as increased public scrutiny on private care home providers. 
  • Financial objectives - use your accountant for this section, where you’ll need to outline financial objectives and figures such as profit margins and EBITDA. 

Read our full children’s home business plan guide now for a better understanding of what you have to include and how it can help you win investment. Here at Rangewell, we work with new children’s care home providers to streamline their business plan and present it to the right lenders who have experience in the sector. As an independent broker, we are able to impartially guide you to lenders you may have not considered who will appreciate a strong business plan. 

Step 4: Secure care home finance

Unless you have vast capital to invest yourself, you’ll need finance specifically designed for your children’s care home project. Many lenders have strict expectations in terms of who they will lend to and what businesses they are interested in. Children’s care homes will need a certain amount of beds in order to deliver a profit worth an investor’s attention (here in the UK, most children’s care homes have an average of four beds).

When you’re seeking investment, you should therefore choose lenders who have pre-existing knowledge in the sector or those you can convince through a trusted third-party such as our team here at Rangewell. For example, we can either guide you to lenders who have worked in the sector before, or suggest other lenders who may be interested but would prefer a specific approach that we can help you with. 

Much of the lender’s decision is based on your background, business plan and financial planning. You may also need to apply for development finance if you’re building from the ground up, which carries its own requirements. Typically, a development lender will require first charge on the property and some form of guarantee about the end purpose of the building.

Once you have your application approved, you can actually start opening your care home but remember that there’s still a significant level of effort involved…

Step 5: Buy your home

With help from your lender and accountant, choose the best option for purchasing your children’s care home. This may be complicated by what plans you have for the premises - such as if you’re buying a pre-existing children’s home where you’ll need to purchase the business itself through a share or asset purchase. 

The most common route is to buy residential property at auction or through other markets, then renovate or upgrade them into children’s homes. This means adding en-suite bathrooms etc, so can incur significant costs. You’ll need to secure finance for this work and then potentially refinance on completion to get more favourable rates. If there’s only a small amount of work required to get the property ready, it may be worth using capital first and then financing for other costs. 

Building from scratch is uncommon in children’s care facilities as you’d need to purchase the land, secure planning permission, supervise the construction and only then could you apply to become a children’s home. With so many barriers in the way, it can make lenders more hesitant and finance harder to find. Once the property is ‘ready’ you will likely refinance into a different agreement as the lender will have more confidence in the returns available. 

Step 6: Recruit staff

If you’re buying a pre-existing children’s home you are likely to inherit the existing staff roster unless you fail to meet TUPE requirements or the employees want to voluntarily leave. The employees are a valuable asset and it may even be worth trying to negotiate with any who are doubtful about staying post-purchase. Their experience will help your application, so where possible it will be worth retaining any experienced staff. 

However, some care home purchases come with employees that offer a subpar record and may have been the cause of poor Ofsted inspections. You’ll need to identify these employees and decide if they’re worth the investment required to either retrain them or make them redundant. 

Crucially, you’ll need to recruit a dedicated care home manager who has experience in the children’s care sector and can meet regulatory expectations. 

Step 7: Complete applications 

The application process is a complex one that requires multiple steps before you’ll even begin to be considered. You must register as a provider under the Care Standards Act 2000, but also register your specific care manager. You can, if you have the existing experience, be both the provider AND the manager, but this is rarely the case. 

Before registration, you’ll need to ensure you meet the standards required, have an adequate DBS certificate, know all of the Ofsted expectations and have all your policies, documents and procedures in place for review. You will need to present documents for any planning permissions you have. 

Once you’re ready, you can apply to register the care provider and the specific care manager online.

Step 8: Start the business

Once your application is approved, you can begin operating as a children’s care home. This means offering residency places to your local authority. However, the lengthy delays associated with care home applications means you’ll need to rely on capital reserves before you can open your doors and begin generating profit. 

As your children’s home begins to take on residents and grow in reputation, you have a duty to continue updating the property or even expanding it to offer more beds or new services.

Secure children’s care home finance with Rangewell

Whatever route you take, however you decide to run your children’s care home, you’ll need significant investment in order to begin operating. This means attracting finance from lenders, those who have experience in the care sector and can either support an outright purchase of an existing children’s care home or the development/retrofitting of an existing property.

Work with Rangewell and we’ll help you secure the right investment options for your goals. That means working with lenders who have experience in your sector and explaining the different options available to you. We’re an independent broker and will help tailor your application to meet lender expectations. 

Contribute to the growing demand for children’s residential care and open your own care home by working with Rangewell today. 

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