Managing cash flow is one of the biggest challenges for care homes today. Rising wages, funding shortages and increasing compliance requirements all add up to make it difficult to keep finances stable.
However, with careful planning and proactive strategies, you can maintain financial stability and protect quality of care.
In this article, we’ll share practical steps you can take to manage your care home’s cash flow more effectively.
Plan ahead with a rolling forecast
Many businesses don’t model the impact of factors such as rising wages or dips in occupancy levels until it’s too late. To minimise surprises, create a rolling cash flow forecast and update it regularly. Your forecast should include:
- Expected payments from local authorities, NHS and private clients
- Staff wages, including National Insurance and pension contributions
- Regular supplier payments
- Rent, utilities and insurance
- Planned equipment purchases and maintenance
- VAT and other tax payments
Plan conservatively, ensuring you can still cover your expenses regardless of what’s thrown your way, whether that’s a dip in occupancy, funding delays or anything else.
With a solid plan in place, you can prepare for challenges that might come your way and make new plans for future growth or expansion.
Optimise staffing & supplier costs
Over-reliance on agency staff drains funds that could be used to add more value to your care home and its staff and residents. Such as investment in facilities, equipment and wellbeing.
By monitoring your staff to resident ratios, optimising rotas to get the most from your staff availability and building a reliable bank of flexible staff to cover holidays and sickness, you can work towards getting your agency staff usage down to a minimum.
Staff retention can’t be overlooked as a way of reducing agency usage. Ensuring salaries are competitive yet sustainable and investing in training and wellbeing are just a few of the ways you can ensure staff feel satisfied and valued, which can then mean a reduction in staff vacancies.
Other areas to free up funds and stabilise cash flow include: negotiating better supplier payment terms, taking advantage of early payment and bulk discounts where possible, opting for monthly payments instead of payment on delivery, and more.
Reduce how long it takes to get paid
Delays between delivering care and receiving payment is unfortunately common for care homes. However, there are ways you can minimise how long it takes to get paid:
- Taking deposits or setting up direct debits
- Invoice financing for large, slow-paying contracts
- Using invoicing tools to help get invoices sent out faster
- A structured credit control process with payment reminders 7 days before the due date, on the due date and 7, 14 and 30 days after the due date
- Following up invoices that are 30 days or more overdue via phone call
Reviewing your fee structure annually can ensure your fees reflect National Minimum Wage increases, inflation, average fees in your region and any other factors. You can also set aside small amounts of money each month to build up a rainy-day fund that will cover unexpected costs, such as emergency repairs.
Monitor cash flow closely
Good cash flow management isn’t about having huge amounts of money in the bank, it’s about knowing where you stand, looking ahead and acting before problems arise.
To implement this, use digital tools and dashboards to track KPIs and metrics like days cash on hand (DCOH), accounts receivable days (AR Days), payroll-to-revenue ratio and break-even occupancy. Even during busy periods, monthly scheduled reviews and pre-set alerts and thresholds can help you catch potential issues sooner.
Platforms such as Agicap and Cashflow Frog offer detailed reporting and forecasting tools which take your cash flow management to another level. Both these solutions also integrate with your accounting software, making it easy to gain control of your cash flow.
Invest in technology
Managing cash flow manually or with outdated systems can lead to mistakes, missed opportunities and wasted time. By investing in the right tools, you gain:
- Real-time dashboards provide an overview of financial performance
- Streamlined invoicing and collections management reduces payment delays
- Reporting helps you make informed and data-driven decisions
- Intuitive tools make planning and forecasting quick and easy
Software like Sage Intacct makes cash flow management easier by streamlining processes, tightening cost controls and bringing you instant insights.
There are also credit control solutions such as Credit Hound, which automate payment reminders to help you get paid faster with minimal admin.
Reach out for a helping hand
If you’d like to discuss how we could help improve your finance systems, our expert team is at your service. We’ve got years of experience in working with care homes and many existing clients in the healthcare industry.
Whether you’re using another Sage product, or you’re considering moving to Sage, complete the enquiry form and we’ll take it from there!
