Around one in eight care homes are at risk of going insolvent in the next three years, a report warns.
A study found the sector has been under "considerable financial strain" in recent years because of rising costs and a lack of funding from local authorities because of Government cuts.
Accountancy firm Moore Stephens said the introduction of the national living wage earlier this year had also increased the financial pressure, particularly on smaller care homes.
Mike Finch, of Moore Stephens, said: "It's become increasingly difficult for care homes, particularly smaller providers, to keep up a consistently high level of care whilst breaking even or worse, remaining solvent.
"The introduction of the living wage has increased the financial pressure on care homes to even higher levels, and this is only likely to continue as the living wage keeps increasing to reach the target of £9 by 2020.
"This is creating an unsustainable situation in a lot of care homes, where more staff is needed to cater for the increase in demand, but the money simply isn't there to cover rising staff costs.
"Cuts to local authority fees have meant that care homes have had to cope with an increasing proportion of the financial burden."