Financing the purchase of decent going concern
Discussion
Cutting a very long story short, say I wanted, together with a couple of colleagues from the 'industry', purchase a residential care home which is a profitable going concern. For an example, we're looking at a small one which has 15 'guests', a turnover of £400,000 and is up for sale for £450,000. This includes the freehold on the premises in question.
We collectively have around £150,000 in collateral on our own houses and could put this up as security.
Is this an attractive proposition to a bank and is there any advice people can give?
We collectively have around £150,000 in collateral on our own houses and could put this up as security.
Is this an attractive proposition to a bank and is there any advice people can give?
Before you go to the bank, work out the expected profits of the business and see if you can pay yourselves and service £450K of debt (assuming the 150K you have is collateral not real cash) and whether you can make any repayments towards that debt. The turnover figure is pretty meaningless in this scenario, its the profit that counts!
davidy
davidy
Edited by davidy on Monday 12th March 10:39
davidy said:
Before you go to the bank, work out the expected profits of the business and see if you can pay yourselves and service £450K of debt (assuming the 150K you have is collateral not real cash) and whether you can make any repayments towards that debt. The turnover figure is pretty meaningless in this scenario, its the profit that counts!
davidy
davidy
Edited by davidy on Monday 12th March 10:39
What he said. Could have a turnover of £1million but still making a loss. I thought care homes were a risky business these days.
find yourself a very good broker and he will get you an excellent deal with a good bank (manager)
for a number of years i tried going it alone and whilst i was variously succesful i never got a particularily good deal.
A good broker will get you an LTV of 80% against FREEHOLD value. the issue is to get a high valuation on the property so you can get a bigger mortgage. bank's will not lend against good will unfortunately.
I would strongly recommend you speak to Simon Mole at Business Connections- i have used him for a number of years and he is brilliant at his job. I'll PM you his number.
for a number of years i tried going it alone and whilst i was variously succesful i never got a particularily good deal.
A good broker will get you an LTV of 80% against FREEHOLD value. the issue is to get a high valuation on the property so you can get a bigger mortgage. bank's will not lend against good will unfortunately.
I would strongly recommend you speak to Simon Mole at Business Connections- i have used him for a number of years and he is brilliant at his job. I'll PM you his number.
XJ_Wanty said:
jamesuk28 said:
I thought care homes were a risky business these days.
I thought that but apparently no, nursing homes are tricky but standard care homes not. There are currently 240 people on a waiting list for a home bed in one Cardiff hospital alone. Hmm.
A lot of 'open' possibilities and is very difficult to advise.
Firstly, £400,000 turnover on 15 guests is 26 grand a year each - is that really what they are paying?
What also has to be taken into account is of course the management and staffing costs, cleaning, feeding etc. Of course for 15 guests this may be pretty manageable with 'just enough' staff to cover, but to give 24/7 support this means a larger rota of staff than you first expect. For example, if someone is doing an 8 hour shift and you need two staff on at any one time, you need 8 or nine full time carers plus coverage. 'Agency rates' are something insane for the care industry like £15 an hour. Thus you may be looking at a wage bill of £200k plus.
If it were being sold as a concern, my 'concern' would be what exactly that concern was before I continued. If it is not something that I could fix, then all is happening is that I would have spent a load of money buying myself more debt.
XJ_Wanty said:
jamesuk28 said:
I thought care homes were a risky business these days.
I thought that but apparently no, nursing homes are tricky but standard care homes not. There are currently 240 people on a waiting list for a home bed in one Cardiff hospital alone. There were two growth markets identified back in about 1998.
One was the internet, the other was care homes strangely enough.
if only these types of questions came up in pub quizes.
I've been tinkering with figures and indeed the salary costs are obviously a major chunk of costs, in fact some care homes for sale don't seem viable. Local care homes employ staff directly usually not much higher than minimum wage (which I do find shocking considering the job they do), night time staff obviously get much more. It does look viable for the right home and as has been said, the right level of profit.
Would anyone be able to give a ball-park annual finance servicing figure on a £450,000 loan/mortgage secured on a property worth £600,000?
Edited to add that yes, £26k is the going rate. Non-nursing care home beds go for between £350 and £500 per week in Wales, more in England and much much more for nursing care.
Would anyone be able to give a ball-park annual finance servicing figure on a £450,000 loan/mortgage secured on a property worth £600,000?
Edited to add that yes, £26k is the going rate. Non-nursing care home beds go for between £350 and £500 per week in Wales, more in England and much much more for nursing care.
Edited by XJ_Wanty on Tuesday 13th March 09:37
Trust me the funding will be your easiest part.
The banks are queing up to fund good quality Care Homes.
Natwest, RBS and Allied Irish all have specialist sections for Care Homes.
Pick up a publication like Caring Business or Similar.
www.caringbusiness.co.uk
Before you get too involved make sure you examine the current staffing set up.
Who is the registered manager? Will he or she stay?
If not then are one of you qualified to take on this role?
Be aware that you must be approved by the CSCI before you can own let alone operate a Care Home.
As for regulations trust me there are plenty..
www.csci.org.uk/care_professionals/service_providers.aspx
Good starting point.
Also remember if none of you are qualified to run the home you will be at the mercy of your manager and whatever their demands are.
Also make sure you check the homes past reports to make sure that you’re not inheriting a series of problems?
www.csci.org.uk/registeredservicesdirectory/rsquicksearch.asp
Good luck
The banks are queing up to fund good quality Care Homes.
Natwest, RBS and Allied Irish all have specialist sections for Care Homes.
Pick up a publication like Caring Business or Similar.
www.caringbusiness.co.uk
Before you get too involved make sure you examine the current staffing set up.
Who is the registered manager? Will he or she stay?
If not then are one of you qualified to take on this role?
Be aware that you must be approved by the CSCI before you can own let alone operate a Care Home.
As for regulations trust me there are plenty..
www.csci.org.uk/care_professionals/service_providers.aspx
Good starting point.
Also remember if none of you are qualified to run the home you will be at the mercy of your manager and whatever their demands are.
Also make sure you check the homes past reports to make sure that you’re not inheriting a series of problems?
www.csci.org.uk/registeredservicesdirectory/rsquicksearch.asp
Good luck
Edited by 2 5HAN on Tuesday 13th March 16:47
pugwash4x4 said:
XJ- expect to pay about £42,750/yr for £450k over 25 years.
Cheers. Looks like we're going to go for a smaller place with six bedrooms and three 'guests' that we will live in... Apparently there is a huge shortage of 'couples' places so I may end up running a pensioner's love shack in Roath.
My IFA works for a company that has a commercial brokerage arm so will talk to them.
Thanks for all the advice!
my word don't go there- Roath is student land and not the best place for pensioners i would haev thought. Maindy would be better (although you wouldn't find the housing i reckon)
ahh unless you mean around roath park and the lake in which case go for it as you will always be able to turn the place back into flats and rent them out to young professionals- what with the hospital being nice and close!
ahh unless you mean around roath park and the lake in which case go for it as you will always be able to turn the place back into flats and rent them out to young professionals- what with the hospital being nice and close!
XJ_Wanty said:
pugwash4x4 said:
XJ- expect to pay about £42,750/yr for £450k over 25 years.
Cheers. Looks like we're going to go for a smaller place with six bedrooms and three 'guests' that we will live in... Apparently there is a huge shortage of 'couples' places so I may end up running a pensioner's love shack in Roath.
My IFA works for a company that has a commercial brokerage arm so will talk to them.
Thanks for all the advice!
XJWanty - is that a leasehold or freehold price you're paying? My wife is looking at buying a car home next year (lots of experience in care services, but not in homes, as yet) and has been offered a going concern for £475k. It has only 8 service users, with a maximum capacity of 10.
My feeling is that the building is what's driving the price up, the business is only bringing in £205k per year. After all outgoings and servicing the debt there's absolutely bugger all profit left!!!
That does seem similar to some of the places I've seen. 12-15 guests and 220k t/o for the year. After working out financing and staff costs I can't see how some of them make a profit.
We're looking at decent three-story large 6-bed family homes with us having the top floor bedrooms and guests having first floor bedrooms. A friend started out this way and now has two or three homes under their ownership.
We're looking at decent three-story large 6-bed family homes with us having the top floor bedrooms and guests having first floor bedrooms. A friend started out this way and now has two or three homes under their ownership.
John
If you need any advice on getting into residential care homes my sister manages a residential care home, for which she has increased turnover from 400k to 1.25M in four years - she knows what she's about! She is looking to branch out as a consultant (already does some work for the NHS), and I'm sure she'd be happy to help you assess the viability of this venture and its potential for increased profit.
Drop me an email if you're interested, and I'll pass on your details.
If you need any advice on getting into residential care homes my sister manages a residential care home, for which she has increased turnover from 400k to 1.25M in four years - she knows what she's about! She is looking to branch out as a consultant (already does some work for the NHS), and I'm sure she'd be happy to help you assess the viability of this venture and its potential for increased profit.
Drop me an email if you're interested, and I'll pass on your details.
XJ_Wanty said:
That does seem similar to some of the places I've seen. 12-15 guests and 220k t/o for the year. After working out financing and staff costs I can't see how some of them make a profit.
Because they'll have bought the property 10+ years ago at a fraction of the current going rate, and are now cashing in on it.
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