Financial health of care homes improving slowly, but credit crunch still being felt

Statistics on care home insolvency, released by accountancy firm Wilkins Kennedy, show that the number of homes going bust fell in 2013 to 51, having peaked at 67 in 2012.

Although an improvement on 2011 and 2012 figures, the number 51 is still higher than the 28 that went bust in 2008 when economic turmoil initially hit the sector.

Wilkins Kennedy sees the improvement as being due to the long-term loans taken at high interest rates, which were available before the financial crisis, having now been paid off, although the firm believes local authority cuts are still leaving their mark on the sector.

Firm partner Stephen Grant comments: “The care home sector has been turned upside down in recent years with local authority cutbacks forcing many businesses into administration.

“Many of the care homes that struggled through the financial crisis have now disappeared, with the overall financial health of the sector slowly improving as a result.”

“However, even though the initial impact of the local authority cuts now seem to have been absorbed, some care home businesses might need to brace themselves for further pain in this area as local authorities face another squeeze in their spending power for 2014–15.”

However, aside from central and local government cuts, breaking the habit of excessive borrowing can lead to longer-term health for care home businesses.

Stephen Grant continues: “Many care homes have been lumbered with high interest payments on their debt from loans taken on when the sector was expanding because investor interest was high.

“These loans are now reaching the end of their term and for the time being that seems to be freeing up enough money to put many care homes back on an even keel.”