How much can I earn?
The main barrier to people wanting to buy a business in this sector is cost. Care homes are expensive businesses, and as a buyer you will need to possess a substantial personal wealth before you even start looking.
“For good quality 10-bedders, you can pay £20,000 per bed depending on location. To buy a 20-bed home, spending at least £20,000 per bed, would therefore cost £400,000, of which you will need a minimum of £100,000 of your own money,” explains King.
Read adds that it is important to factor in the extra costs when buying a business. “Out of £100,000, quite a lot is eaten up in costs. For example, when buying a business for £320,000, you will use £80,000 of your own money and £240,000 of the bank’s money. Then there is stamp duty of around £9000 and solicitors costs, valuation costs and registration fees together costing around £5000 altogether.
“It’s also good to have some cash for when you start, although care homes actually need relatively little working capital, since payment is in generally in advance while you pay wages in arrears.”
Since any investment into a care home will be a significant amount, you would expect the returns to be substantial as well – and you’d be right. Running a care home can be a very lucrative business, explains King.
“In the smaller care homes, if you’re the registered manager you can make 35-40% profit from fees. Fees are around £250 per week per bed. Therefore, on a smaller home with say 10 beds, you will make a profit of £50-60,000 before interest payments.
“With larger businesses you can make more money since you get economies of scale. Although of course, for a bigger one you will need to get a manager in.”
We were quoted yields of between 20 per cent and 23 per cent which for a business costing £450,000 would give a profit of around £100,000, after overheads but before loan costs.