Do you know how important it is to factor profit into the cost of care? Richard Shore, finance director, Caresolve, says too many care homes are not paying close enough attention to the financial aspects of running their businesses. Here he offers some advice
A standard cost of care calculation will generally cover items such as staffing costs, other direct costs and overheads. This is true whether the cost calculation comes from you as a provider or as a template for completion from, for example, a local authority as part of an annual review of fees. The issue of profit (or cost of capital) is often less straightforward. However, it is important that providers understand the level of profit they should be making and are in a position to have appropriate discussions with commissioners about why it is also important for them to consider this properly.
Providers are often hesitant or nervous about discussing with commissioners the need to make a profit, what level of profit should be made by a business and why this is the case. There may be a feeling that commissioners would see profit as directly related to what an owner takes out of a business, when this is not the case. Commissioners do not always give the issue the prominence it deserves when looking at fees and can be dismissive of it. Templates from local authorities may completely ignore a detailed discussion of profit, stating they will “apply a fixed percentage to all returns from providers to account for return on capital employed”. This is unsatisfactory.
Profits made on care home businesses should be used to cover the following:
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