Early warning signs for aged care operators on the road to economic recovery

20 August 2020

COVID-19 has drawn further attention to frailties in Australia’s aged care system, including the poor financial performance of a growing number of aged care providers and challenges brought about by regulatory reform, an uncertain investment outlook, workforce limitations and Royal Commission recommendations.

The Royal Commission into Aged Care Quality and Safety highlighted that staffing levels needed to be increased by 37% in certain homes and by 20% across the sector to meet acceptable international benchmarks. This, in conjunction with the increased cost of hygiene and staff management brought about by COVID-19 and the reliance on liquidity from new Refundable Accommodation Deposits (RADs) to refund old RADs rings “alarm bells” for aged care providers and their stakeholders.

With c.60% of aged care homes reporting an operating loss at March 2020 according to a recent Stewart Brown Financial Performance Survey, the moratorium on insolvent trading ending in September and Government stimulus being wound-back from October, the road ahead for aged care providers appears very uncertain.

As such, now more than ever aged care operators, their Directors and stakeholders should closely monitor the early warning signs or lead indicators of financial distress. Whilst trading losses, unpaid employee entitlements and limited cash reserves are obvious indicators, we set out below some further indicators we have seen monitored by companies or their stakeholders in this industry.

Knowing of, identifying and monitoring lead indicators of financial distress facilitates better planning, viability responsive action and helps Directors meet their legal (as well as social and ethical) duties.

Early warning signs