Harnessing the Opportunity in Crisis: How and Why Must Aged Care Providers Strengthen Financial Resilience

The highly informative DCM Group Leaders Summit 2025 highlighted a critical point: the aged care sector must proactively shape its future rather than wait for policy or regulatory clarity.

With the introduction of the new Financial and Prudential Standards expected by 1st July 2025, aged care providers have an opportunity to build robust financial practices that not only ensure compliance but also enhance long-term financial health. This is especially crucial given the dynamic and evolving landscape of the aged care sector, where ongoing reforms, changing demographics, and economic fluctuations can create uncertainty and financial pressures.

The draft liquidity requirements, which suggest holding liquid reserves of 35% of quarterly cash expenses plus 10% of RAD liabilities, present significant implications for Residential Aged Care (RAC) and Home Care providers. Given the possibility that these standards may be implemented as currently proposed, or with minimal adjustment, providers should actively prepare to meet these prudential benchmarks while building a stronger financial foundation overall. These new standards are designed to ensure that aged care providers have sufficient liquidity to meet their ongoing operational expenses and commitments, including resident refunds and care services. However, they also require providers to carefully manage their cash flow and investment strategies to maintain compliance.

At Anchor Excellence, we’ve consistently encouraged providers to strategically focus on what they can influence—strengthening their operational and financial practices, embedding effective governance, and proactively managing liquidity. By taking a proactive and strategic approach to financial management, providers can, not only, navigate the complexities of the new standards but also position themselves for long-term success and sustainability.

What the New Liquidity Standards Mean for Providers – a recap

The proposed standards may notably increase the cost of capital and potentially limit investment in facility upgrades and care innovations. Residential Aged Care providers could experience delays in developments due to more stringent liquidity requirements. Home Care providers, facing tighter margins with the upcoming Support at Home reforms, must also ensure robust cash management practices to maintain sustainable service delivery. These impacts could have a ripple effect on the quality of care and services provided to older Australians, as providers may need to make difficult decisions about resource allocation and investment priorities.

However, these challenges also present opportunities for providers to strengthen financial governance, embed robust liquidity management practices, and optimise operational efficiency. By proactively addressing these challenges and embracing the opportunities they present, providers can concurrently comply with the new standards and enhance their overall financial health and resilience.

Practical Steps for Providers: Building Financial Strength

1. Embrace a Strategic Mindset

Providers are encouraged to approach these new prudential standards not just as regulatory requirements but as an opportunity to showcase financial resilience, sustainability, and sector leadership. Viewing compliance through the lens of strategic opportunity allows providers to build stronger, more adaptable financial practices. This mindset shift can empower providers to take ownership of their financial future and proactively shape their strategies for success.

2. Implement Best Practices in Liquidity Management

• Liquidity Forecasting and Gap Analysis: Develop comprehensive forecasts to predict cash inflows and outflows accurately, identifying potential liquidity gaps early and creating strategies to address them. This involves regularly reviewing and updating financial projections, considering various scenarios and potential risks, and taking proactive steps to mitigate any identified gaps.
• Tiered Liquidity Portfolios: Structure reserves into clearly defined tiers, including:
• Regular Scenario Planning: Regularly perform liquidity stress tests and scenario analyses to understand financial vulnerability under various market conditions and regulatory outcomes. This involves simulating different scenarios, such as changes in interest rates, occupancy levels, or government funding, and assessing their potential impact on the provider’s liquidity position.

3. Strengthen Investment and Treasury Policies

• Adopt a clear, well-documented investment policy that aligns with organisational risk tolerance and regulatory requirements. This policy should outline the provider’s investment objectives, risk appetite, and guidelines for managing investment portfolios.
• Regularly review and update treasury strategies, balancing optimal returns with required liquidity levels. This involves actively managing cash flow, investments, and debt to ensure that the provider has sufficient liquidity to meet its obligations while also maximising returns on invested capital.
• Engage external financial advisors where needed, particularly for strategic investments and capital restructuring. External expertise can provide valuable insights and guidance on complex financial matters, helping providers make informed decisions and optimise their financial strategies.

4. Drive Operational Efficiency

• Conduct operational efficiency reviews to identify savings and streamline processes without compromising quality. This involves analysing current workflows, identifying areas for improvement, and implementing changes that can reduce costs, improve productivity, and enhance service delivery.
• Optimise the management of RADs and other deposits to improve cash flow predictability and responsiveness. This involves implementing effective systems and processes for managing resident refundable accommodation deposits (RADs) and other deposits, ensuring that funds are readily available when needed and that interest and fees are managed appropriately.
• In Home Care, tighten revenue cycle management processes and billing practices to ensure timely income and cash conversion. This involves streamlining billing and collection processes, reducing delays in payment, and improving cash flow from home care services.

5. Enhance Financial Governance and Capability

• Equip Boards and executive teams with ongoing training in financial oversight, prudential management, and liquidity planning. This ensures that key decision-makers have the knowledge and skills needed to effectively manage the provider’s finances and navigate the complexities of the new prudential standards.
• Regularly review financial metrics, liquidity positions, and risk assessments at the governance level. This involves establishing robust reporting and monitoring systems to track key financial indicators, identify emerging risks, and ensure that the provider’s financial position is aligned with its strategic objectives.
• Foster a culture of proactive financial management at all organisational levels, not just within finance teams. This involves promoting financial literacy and awareness throughout the organisation, encouraging staff at all levels to take ownership of financial responsibilities, and creating a shared commitment to financial sustainability.

Anchor Excellence’s Approach: Focusing on What Providers Can Control

Anchor Excellence has long maintained the position that providers can and should actively manage their financial and operational risks. The current prudential changes offer an ideal moment to reinforce internal capabilities, improve financial management practices, and embed strategic leadership in financial resilience. By taking control of their financial destiny and proactively managing risks, providers can position themselves for success in an uncertain environment.

By focusing internally on sound liquidity practices, strong governance, and operational efficiencies, providers can position themselves for sustainable growth and enhanced reputation. This internal focus can also help providers build trust and confidence among residents, families, and other stakeholders, demonstrating their commitment to responsible financial management and high-quality care.

Conclusion: Lead with Confidence, Prepare with Purpose

Regardless of the final shape of the prudential standards, proactive financial management practices are essential for provider sustainability. Providers who use this period to strengthen liquidity management, enhance financial governance, and drive operational efficiencies will not only comply comfortably with the new standards but also emerge as leaders within the sector. By taking a leadership role in financial management, providers can inspire others and contribute to a more financially resilient and sustainable aged care sector.

Action Steps for Providers:

✅ Conduct liquidity forecasting and gap analyses.

✅ Adopt a robust investment and treasury management framework.

✅ Regularly perform liquidity scenario planning and stress testing.

✅ Embed a culture of proactive financial governance across your organisation.

Anchor Excellence is already helping a number of innovative aged care providers improve their financial resilience, and we can do the same for you. With our support, we’re confident that you can make significant improvements to your financial sustainability and help create an aged care sector that will thrive in the face of uncertainty. If you would like to discuss further, please reach out to Payal Kapoor who is only an email or phone call away!