The short answer: a full children's home can still run short of cash, and a home can look busy while quietly losing money on certain placements. The fix is not complicated, but it needs two things most operators do not have yet: your income and costs split by home (and ideally by child), and a simple monthly view of what is owed to you by each local authority against what you have to pay out. Once you have those, decisions about staffing, fees and the next home get a lot easier.
Profit and cash are two different problems
I see these get mixed up all the time, so let me separate them.
Profit is what is left after you take your costs off your income. Cash is what is in the bank on the day the payroll runs. In a children's home the two can be miles apart, because your biggest cost is staff, and staff get paid on a fixed date whether or not the local authority has paid you yet.
Think of it like a bath with the plug half in. Fees come in through the tap, often a good while after you have done the work. Wages, rent and bills drain out every week. You can have a lovely full bath on paper and still be standing in an empty tub on the 28th.
Why local authority payments make this harder
Every local authority has its own way of doing things. Some want a particular format of invoice, some query hours of one to one support, some pay promptly and some do not. If you work with several councils, you may be chasing different people on different timetables.
None of that is unusual, but it does mean you cannot assume the money lands when you expect it. What you can do is know, at any point, exactly who owes you what and how old each invoice is. That is a short report from your bookkeeping software, and it is the first thing I set up for a care client.
The monthly cash view I would want you to have
You do not need a complicated forecast. A simple one-page view each month does most of the work.
- Who owes you. Each local authority, the amount, and how long it has been outstanding. Anything over its normal payment time gets chased.
- What you owe. Payroll and the related tax and pension payments, rent, agency invoices and suppliers, with their due dates.
- The gap. What is likely to come in over the next four to six weeks against what has to go out. If the gap is negative, you want to know now, not on payday.
- Tax already set aside. VAT, PAYE and corporation tax should not be sitting in the same pot you are using to cover wages.
Per-placement profitability, step by step
This is the bit most operators have a feeling about but no number for. Here is the method I use.
- Income per placement. The fee you invoice for that child over the month, including any extra you charge for additional support.
- Direct costs for that child. Extra one to one staffing, agency cover brought in because of that child's needs, transport, activities and anything else you can point to.
- Share of the home's running costs. The registered manager, rent or mortgage, utilities, insurance, food and the regular staff team. Share these across the placements in the home on a sensible basis, such as the number of children or the number of nights.
- Empty beds. If a bed is empty, the costs are still there. Show the cost of voids as its own line, so it does not quietly disappear into the average.
What is left is the margin on that placement. Some are strong, some barely cover themselves, and occasionally one is losing money. That is the conversation to have with the placing authority about fees, and it is a much stronger conversation with numbers in your hand than without.
Round numbers to show the method only, not typical fees: if a placement brings in £10,000 a month and its direct costs and its share of the home's costs come to £9,000, the margin is £1,000. If the home also has an empty bed that month, that bed's share of costs still has to be paid by the others.
What good bookkeeping looks like for a care home
Everything above depends on your records. If every fee and every cost goes into one pot, none of this is possible. What I set up is:
- Income and costs tagged by home, so each home has its own profit and loss.
- Invoices raised in a way each local authority can process easily, with the child, the dates and the rate clear.
- A regular check of unpaid invoices, so nothing quietly gets older.
- Staffing costs, including agency, in their own lines so you can see them move month to month.
- A monthly set of management figures that you actually read, not just year end accounts that arrive too late to change anything.
If you run more than one home, this also feeds your group structure decisions, because you need to know which homes are strong before you decide how to fund the next.
Things worth doing this month
- Pull a list of every unpaid invoice by local authority and sort it by age.
- Work out your fixed monthly costs, and divide by four to get a rough weekly figure. That is what an empty week costs you.
- Check whether your software can split income and costs by home. If it cannot, ask your accountant to set it up.
- Try the free care home cash flow checklist to see where you stand.
If you want to see how I support care providers month to month, have a look at the care home accounting page. If you also have other businesses or income outside the home, my wider accounting services page covers that. And if the numbers above feel out of reach right now, that is exactly the kind of thing I help with, so book a free call and we can go through it.
This is general information, not personal financial or tax advice. Every local authority and every home is different, so check what applies to you before making decisions.