10 Steps to Get Ahead of the New Aged Care Financial Management Rules
Despite the recent operational challenges faced by residential and home care providers, many operators have maintained significant cash reserves. These have been supported by Refundable Accommodation Deposits (RADs), receipt of Government funding in advance, cross-subsidisation from other activities such as retirement living, or reserves accumulated in better times.
However, change is coming.
Providers must urgently strengthen their financial management framework to prepare for the elimination of margins in care funding, a shift to paying care subsidies on an arrears basis, clawbacks for care minute shortfalls, and the impending implementation of mandated minimum liquidity standards - alongside policy settings that will see a further decline in RAD payers as a proportion of residents.
In this Insight, we unpack three critical areas:
Providers who fail to prepare now may find themselves financially constrained when these changes take full effect.
Why return on investment matters
The first obligation of any provider is to generate positive cash flow at the operational level. As long as cash inflows exceed cash outflows, operations remain viable - but not necessarily sustainable.
To be sustainable, operating cash flows must include sufficient surplus to recover the capital invested in your operating assets and deliver a return on that capital.
While regulatory compliance is a condition of your licence to operate - it is not – and is not intended to be – a guarantee of your financial viability or sustainability. Regulatory requirements may provide early or late warnings of impending financial stress, but simply meeting liquidity standards does not mean your financial position is sound.
Ten steps to strengthen your financial future
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Start planning now
Liquidity reserves will become a reportable quarterly requirement from Quarter 3 2025. To remain compliant and avoid surprises, you should be able to project your capital reserves and assets for at least 3 years. Providers with long-term development pipelines or who intend to invest large proportions of their current liquidity reserves will project their liquidity out to 5 or 10 years. -
Set clear financial targets
Define minimum requirements for EBITDA, return on investment, and timeframes for achieving returns to ensure both viability and sustainability. Projects that don’t meet these criteria are not viable and should be paused or redirected to better alternatives. -
Develop or update your long-term asset management models
Some older buildings will not be safe or aesthetically acceptable to future aged care residents. Existing facilities will inevitably need upgrades to adapt to future changes in resident needs. Sustainable capital maintenance models must allow for minor renovations every 5-8 years and major refurbishments every 15-20 years, with sufficient returns to fund them. -
Assess your investment strategy
Identify how liquidity restrictions impact your capital works, site development, and acquisition plans. If you plan to borrow to maintain a minimum pool of liquid funds, your operating return and capital (RAD) pricing model will need to meet the risk management requirements of financiers. -
Optimise revenue streams
Identify opportunities to improve revenue across all service lines. For residential providers, focusing on only one margin - care, everyday living, or accommodation – at a time is not enough. Home care providers may need to offer a mix of funded and private services.
Providers who can align their business models around one or more narrow customer profiles will generally make higher overall margins than those who are trying to offer something to everyone. -
Implement best practice liquidity management
Maintain appropriate liquidity buffers to meet operational and regulatory requirements. Update your liquidity policy to adopt a flexible, tier-based approach that prioritises yield over the long term. -
Improve access to external funding
Funding support from financiers and access to government grants are increasingly restricted to providers who can demonstrate both high compliance and efficient use of funds. Much like a business seeking investors, if your medium-term plans rely on asking someone for money, you must start maximising revenue and cleaning up inefficiencies now to ensure that your organisation will be ready. -
Optimise your RAD/DAP mix
Residential providers are expected to maximise room prices for residents who have the means to pay, as the government has factored returns on invested surplus funds into the calculation of accommodation supplements for supported residents. Announced changes effective from 1 July 2025 will improve the viability of providers with clear value propositions for choosing DAP models, especially during periods when major capital investments are not planned. -
Replace lazy assets
Providers sitting on large volumes of ‘safe’ cash or term deposit assets have been repeatedly advised that they are not meeting the expectations of the regulator, nor is their money working hard enough to satisfy astute financiers, investors or donors. While the new minimum liquidity provisions may be a stretch for some providers to set aside enough capital, the opposite is true for providers with too much cash who now need to source projects and investment classes that will generate higher, sustainable returns. -
Embrace commercial benevolence
Some providers choose to charge less than a fair market price for accommodation and services to those that the government has determined have the means to pay. Choosing to charge less may feel benevolent at the time, but will be viewed less charitably in the future by residents who are asked to move into a poorly maintained building, or by grant funding bodies if they are asked to fund a refurbishment which could have been at least partially paid for from sustainable operating returns. Providers are expected to maintain a strong commercial focus on charging a fair price for services while still delivering benevolent outcomes for consumers.
Getting ahead starts now
Balancing financial viability, long-term sustainability, and (for most in the not-for-profit sector) the tension between commerciality and mission isn’t easy – but it’s essential.
With new financial standards taking effect, leading providers are already rethinking how they manage liquidity, plan investment, and structure RAD/DAP strategies.
At Pride Aged Living, we have worked with hundreds of providers to navigate these pressures. Our experience has shown that staying ahead of these changes is key to maintaining financial health and ensuring long-term success.
We support providers through:
- Liquidity strategy and management policies – Designed to flexibly address a range of future scenarios and tailored for easy maintenance by finance teams.
- Growth and investment strategy development – helping you plan for expansion while remaining within regulatory constraints.
- RAD/DAP optimisation strategies – enhancing financial performance through optimised RAD/DAP structuring.
By proactively addressing these areas, you can position your organisation to thrive in a changing financial environment.
To find out more, contact Stephen.
Stephen Rooke
02 9068 0777
stephen.rooke@prideagedliving.com.au
