Operational and Financial review of a 12 care home group in the South West

On the instruction of a major bank Healthcare Solutions (HCMS) were instructed to carry out an appraisal of a 12 home group. The brief was to determine whether management had the capability to turn around a business that had been unable to meet it’s financial obligations, and that was under creditor pressure from suppliers and HMR&C. Two homes in the group had recently been closed by the care homes regulator.

The bank had been unable to obtain meaningful financial information from the borrower to support requests for overdraft extensions and interest and capital moratoriums. Despite the financial problems and the complex structure of the group, the principal concern was the potential for the homes to be closed following problems with the Care Quality Commission (CQC) as this would significantly impact upon the value of the bank’s security.

HCMS were instructed to carry out a review of the management to ensure that they had the skills and experience necessary to work their way through the problems that the group faced. Following a preliminary meeting it became apparent that the group also had issues within the finance department and the scope of the review was extended to encompass a review of the financial systems and reporting.

The reviews were carried out in a relatively hostile environment with resistance from the existing management team who, on the whole, felt that all their problems were behind them. It became apparent that there were serious deficiencies in the quality of management information and in the dissemination of this information to home managers.

The report, which included a review of competition, physical condition, management and financial systems and reporting, highlighted a number of areas where it was felt that the management team could improve, most notably in developing strategies to market the homes, manage agency staff costs and produce relevant, timely, and accurate management information. This was presented to the existing management team who argued that they had the capacity to work through the problems without further external intervention.

Following a post-report briefing by HCMS, the operator recruited a new financial controller and, determined to prove their capabilities, focused intently on implementing the HCMS report recommendations and improving their financial performance.

Review of three family owned homes on behalf of a bank

A leading lender to the sector contacted HCMS with concern over the viability of a family operated, three home care group. The bank in question believed that the homes were being operated to a reasonably high standard but was concerned that a high cost base, together with the imminent end to a capital repayment moratorium would lead to financial difficulties for the group.

The bank wanted a review of the business, but they were mindful of concerns raised by the owners that a high profile review would lead to worry among the staff and damage the reputation of the business locally.

HCMS discussed the concerns with both the bank and client and it was decided that a ‘light touch’ review of operations should be undertaken together with a more thorough review of the financial performance, most of which could be carried out off-site and in advance of the field work.

It was agreed that a thorough examination of the operations would only be required if the initial visits indicated that there might be problems.

The owners worked closely to provide detailed information which was carefully analysed before the visit. A single HCMS representative was involved throughout the process, in this case a Director, and the physical time on site at the various homes was limited to a single day.

The conclusion drawn was that the operations at the home, although not perfect, were good and that there was evidence that the owners were driving further improvement. Despite much closer attention to costs it was evident that the business was unlikely to be able to meet the capital repayments, however in the light of the report, the bank concluded that a further interest-only period was appropriate as it avoided the crystallization of debt and gave the business the breathing space to make further improvements.

Operational audit and financial review of a care-home group consisting of 20 homes

 

In early 2011 HCMS was asked to carry out both an operational audit and a financial review of a care-home group consisting of c. 20 homes. All of the homes were located in England.

The group had been with the lender’s restructuring team for over 12 months, and whilst independent financial business reviews had been undertaken during his time, the lender wanted an independent sector specialist’s viewpoint. The objective was to enable the creation of a turnaround strategy for the group.

Working closely with the business owners, HCMS completed the detailed operational reviews at the homes within 9 working days. The final report summarised the key issues, home by home, and clearly identified areas where improvements were required. The completed review found that that whilst 9 homes were performing well and 3 homes had some occupancy issues, there were several homes within the group with serious problems. As a result, management effort could be focused on these homes and, as part of the review, HCMS prepared action plans for immediate implementation.

In addition to the identification of operational issues, significant savings/cost reductions were identified throughout the homes and the Head Office function.