Achieving efficiency when it comes to balancing the books is a challenge for many single-site nurseries, as well as small chains, which are striving to be sustainable in the current business climate. Without the economies of scale or purchasing power enjoyed by the bigger groups, it is imperative that they understand and manage every cost down to the last penny.
Ideally, business planning should be an exercise that involves the whole team, and provides key performance indicators for individuals to work to. Introducing staff to budgets encourages their financial awareness, as well as their sense of responsibility when it comes to dealing with problems such as parents’ late payments – and doing so in a business-like way.
According to business advisor Maureen Askew, it is important to establish the difference between budget and cash flow. She says, ‘Budgeting is all about planning ahead, accurately factoring in all running costs and erring on the side of caution when it comes to forecasting. Cash flow is the money that is coming in and going out, which has to be tightly monitored on an ongoing basis.’
She says that sometimes it can be hard for nurseries to establish their ‘break even’ point.
‘This is not about how many places a nursery has filled, but about how many of its available hours are being paid for,’ she explains. ‘Where managers often say the setting is “full”, they may still have hours at the beginning and the end of the day that are not being used. These need to be filled, which can mean being assertive when it comes to telling parents what hours are available.’
OCCUPANCY AND COSTS
The relationship between a setting’s income and occupancy is key. At Acorn Childcare, which has ten nurseries across Milton Keynes and Northampton, chief executive Zoe Raven tells Nursery World, ‘It is important to account for the annual peaks and troughs. Autumn is the lowest occupancy point. A quarter of children disappear to school at a single point of entry. And while a nursery may have forward bookings, it has to address filling the hours until then.’
The solution for Ms Raven, she says, is to ensure that the troughs are accounted for financially, and expenditure is planned for in spring and summer.
Increasingly, analysing income is complicated by the free entitlement funding streams, the Early Years Pupil Premium and employer childcare voucher schemes – which can sometimes mean payment delays. At business consultancy Flourishing People, its director Jacqui Burke says, ‘It is important that providers also scrutinise cost in terms of the age ranges of their children, because fees and staff costs vary for different age groups.’
Knowledge is power when it comes to understanding individual costs. The National Day Nurseries Association (NDNA)’s business advisor, Deborah Robinson, says, ‘Unfortunately, some providers are unable to budget for all areas and therefore they can incur unplanned costs.
‘For example, marketing should be a planned, consistent cost and not reactive to a sudden drop in occupancy. Budgeting to allow contingency can also be a problem, such as coping with an unexpected event like last year’s floods.’
TROUBLESHOOTING
Establishing a strict regime, where parents pay for their nursery fees a month in advance, can circumvent the possibility of bad debts. ‘It is important to set boundaries with parents from the outset – establishing fee amounts and when they are due,’ says Ms Raven.
Card and online payments take precedence over cheques and cash. Cash poses issues of security, requires paper receipts and in some circumstances makes providers vulnerable to petty theft. ‘There are now some very cheap options around for nurseries to take payments by card and online, and the beauty of it is there is always a record of the payment,’ says Ms Askew.
Investment in computer packages to manage accounts is undoubtedly transforming efficiencies for many settings. Size and capabilities of systems vary greatly, and are tailored to the size of the setting. At their most basic level, they deal with registrations and invoicing, while many now offer sophisticated levels of financial input and reporting, support with practice linked to the EYFS and functions linked to tablets.
Set-up costs can start at around £500, with a monthly fee of £50, but the only way to get a real handle on price and contracts is to seek an individual quote.
While welcoming the choice and flexibility now available, Ms Raven reports that it is not particularly easy to find software that suits your setting. ‘It pays to shop around,’ she says. ‘And it is certainly a good idea to speak to other nurseries and find out how systems are working for them.’
If investment in software is beyond a nursery’s current scope, this need not be a problem, however.
Ms Burke explains, ‘You don’t need anything more complicated than Excel, and there are free tutorials available to help nursery managers get to grips with working on spreadsheets.’
‘WHAT IF’
When it comes to budgeting for 2017, funding for the 30 hours is causing owners and managers the biggest headache. While roll-out is set for next September, there is still no confirmation from local authorities of what the exact rate will be, which makes financial forecasting problematic.
Like many others, nursery owner Kay Patel is outraged by the situation. The director of Happy Tree Nursery in West Drayton, Middlesex, says, ‘Although we have a base rate of £3.53 and an average rate of £4.88, we still don’t know what our exact rates are going to be, and so we cannot set the budget. This is compounded by the fact we work across three different boroughs. We’ve taken on board all the other cost rises, including the National Living Wage, rates, pensions and VAT and can factor in our fixed costs, but we cannot estimate cash flow.’
The advice from Ms Burke is to budget on the basis of ‘what if’ scenarios. ‘Nurseries can run different options on their spreadsheets and see how they play out. Then they will already have an idea of their options when figures are confirmed.’
Being pro-active in talking to parents of current two- and three-year-olds who will be eligible for the expanded offer when it kicks in is a way to get a handle on the future, according to Ms Askew. ‘They can start finding out now who will potentially be taking up the places, and plan for that accordingly,’ she says. ‘They can also start thinking about the introduction of tax-free childcare in 2018, where the Government will be paying 20 per cent of parents’ paid-for childcare, up to £2,000 a year.
‘This, combined with the free hours, represents a good deal for parents, and has the potential to drive occupancy.’
‘What if’ scenarios can feed into a business plan, which should be regularly updated in line with new developments. The NDNA’s Ms Robinson says, ‘Some smaller nurseries don’t understand what a business plan is or what it is for, but they need one as much as any other organisation.’
She adds, ‘Without demoralising them, staff should be aware of the performance of the business so they can take ownership of it. Feedback linked to the business plan and KPIs is a positive way of allowing all staff to take ownership of the setting and ensuring they contribute to its success.’
STAYING AFLOAT
New View Nursery in Horsham, West Sussex is an Outstanding 22-place setting for two-to five-year-olds. Owner Sharon Rea says its register to 2017 is almost full and she is budgeting on the basis of income estimated on current funding rates. She reports that introducing additional charges into her financial planning is the only way she can remain sustainable – particularly as the local authority has not raised its £3.77 hourly rate for the funded 15 hours in the past three years.
She says, ‘When I bought the nursery in 2008, I increased the hours to include afternoon pre-school sessions, as I had to address the 15-hour free entitlement. I had estimated that if every family were to take their 15 hours in the mornings, there would be no room to bring in new families of younger children who would pay our hourly rate of £5.80.
‘As a result I decided to limit families to three morning sessions when they receive the 15 hours. This is from 9.15am to 12.45pm (three-and-a-half subsidised hours) and parents pay £1.45 for the 15 minutes when our doors open at 9am. Our afternoon sessions run from 1.30pm to 4.00pm (two-and-a half subsidised hours). I charge £5 for our lunch club, and children bring in a packed lunch. Parents have the option to pick up at 12.45pm and return at 1.30pm, but nobody does this. I also charge an additional services fee of £28 per term. All families pay this, although I do express it as a voluntary fee with an explanation as to why I charge it.’
Ms Rea reports that she does not intend to participate in the 30-hours offer.
FURTHER INFORMATION
NEyTCO,
Ask Askew Early Years & Childcare Business Consultancy,
Flourishing People,