There has been no shortage of commentary on the challenges facing care homes during the pandemic, from the number of infections and fatalities to the risk of further waves and lack of testing and PPE, along with the loss of income due to lower occupancy and reduced staff levels and reputational implications. There is speculation that some 25% of care homes may go out of business.
However, whilst these matters are real threats to businesses in the care sector, there are nevertheless some things that are well worth you considering as part of your plan for sustainable growth for a viable care business. The following are just some examples.
Have a clear strategy for your business
If you have decided how you want your business to look and function in an environment shaped by the pandemic, you may wish to adopt or continue a strategy to grow by acquisition. With the sector having had its business models, structure and solvency rigorously tested, there will be some care home owners that have decided that now is a good time to consider selling their business. A purchase of a business through a share or asset sale will help businesses seeking to expand their portfolio. Similarly, if you have decided to divest yourselves of a struggling care business or business line, you can seek out purchasers that are willing to take over all or part of your business for mutual benefit.
If you don’t want to sell but do wish to strengthen working capital, you may wish to think about the sale, lease or licence back of key assets, such as your property (if you own the freehold), intellectual property or other physical assets. Alternatively, you may wish to raise more funds through retail debt options, by giving security over assets, from debentures and mortgages to cross guarantees and charges over shares or credit balances, or by raising debt finance from other investors in the form of the issuance of convertible loan notes, or the allotment of shares, perhaps with preferential distribution rates and set redemption characteristics attached to them.
For family run care homes, in the same way that the pandemic ought to have triggered a review of your wills and estate planning, the same goes for the underlying constitutional documents of companies that you own or have interests in. Some questions which clients ought to ask themselves in the context of their estate planning are; what happens if a shareholder is incapacitated due to illness and cannot carry out their role in the business? What happens if the company’s articles or a shareholders agreement expressly conflict with the provisions you have included in your will? Are you even permitted to leave your shares to your chosen beneficiary, or is this option blocked for you? These considerations and more, particularly in the context of family businesses, need exploration to ensure that your wishes are protected.
Review your supply chain contracts
Take the opportunity to look at your supply chain contracts. COVID-19 has meant that force majeure clauses have come under real scrutiny, and businesses who do not have such clauses in their commercial agreements have suffered significantly as a consequence. Do you want to build bridges with your suppliers and negotiate new terms, or has the time come to end the relationship? As the UK is bracing itself for the impact of Brexit, to what extent is your supply chain affected? Do your contracts provide for the extra costs incurred for customs declarations if no agreement is reached following the transition period? Or do they make allowances for the delays in shipments, particularly if their goods are time critical?
Are your staffing requirements under control, given changes to the furlough arrangements? If you are growing and looking to recruit, do you want to look again at your standard terms of employment, policies or procedures? For existing staff, do you want to make changes to their contracts, salary, work patterns or places of work? Do you need to look at possible redundancies, or have a plan to deal with members of staff that refuse to return to work, either because they are vulnerable and/ or they have health and safety concerns about the work place environment?
There may also be TUPE issues where you are looking to expand your portfolio for which due diligence is key.
As will be the case with many businesses, do you have claims against others and/or claims against you? Have you had advice on the merits of those claims? Do you want to try and resolve such claims amicably, possibly by mediation, or will you have no alternative but to claim? If so, how will you be able to fund those claims? If you are a tenant, with landlord’s rights of recovery currently restricted, this may be a time to time to renegotiate rental payments, including outstanding rent, or agree variations or restructuring of your leases.
Protect your reputation
Do you need help with the protection of your reputation and responses to hostile commentary or publicity in the event of an incident or more generally? A well planned program of responses may restore valuable goodwill to your care business.
Costs saving measures
If your care business is in distress, there are some statutory provisions that may be available to give you some respite from creditors, but be prepared to make cost savings measures now; consider the funding support that is available and your ability to service that. Cash remains key, so take steps to maximise your cash reserves and see if you can negotiate with creditors for the extension or renegotiation of payment terms. If you are concerned about paying your debts or your balance sheet, take professional advice as soon as possible, as if this is done early then a turnaround restructuring solution or orderly formal insolvency process can often be implemented. If done on a timely basis, there is always the chance to sell your business or merge with a larger, more cash rich entity.
Stuart Evans, Partner, Commercial Advisory & Private Wealth team, BLM
At BLM, we recognise that this is a very challenging time for the care sector, and we do not seek to sugar coat such challenges. However, we do see that there are many ways in which you can improve your position in these times. Your interests are at the very heart of what we do and we look to deliver value for money at every stage to assist in protecting your business, brand and reputation, controlling costs and outcomes, as well as sharing knowledge to minimise future risk and improve best practice.
You can find out more about the team, here.