We are not yet in a recession. This is only deemed to have occurred ifthe country experiences two consecutive quarters of negative economicgrowth. Nevertheless, we are clearly in the middle of an economicdownturn - driven by the 'credit crunch' and the rising price ofcommodities such as food, gas and oil.
So how is the economic climate likely to affect nursery operators?
DEMAND
The initial concern is likely to be that demand for childcare placeswill fall. As a nursery operator, you may have already seen this happenwhen parents who don't work but still send their children to a nurseryfor one or two sessions a week have decided that nursery care is an itemof household expenditure that is non-essential. If the gloomy economicclimate continues, demand could fall as parents look to reduceexpenditure further.
However, an alternative view is that the demand for nursery placescould, in fact, rise. It may be, for example, that mothers are forced toreturn to work more rapidly than they might ideally want to, or they mayneed to work full-time where previously they would have returned to workon a part-time basis.
The early years sector could also be partially protected from the widereconomic conditions due to the fact that the provision of early yearscare is, to quite a large extent, backed by government funding.
In addition, it has been suggested that the decline in the number ofregistered childminders could lead to more demand for nurseryplaces.
CREDIT CONTROL
As financial pressures increase, there is a risk that parents will startto fall behind with fee payments. In dealing with this issue, you needstrong managers to ensure that quick and decisive action is taken toensure that fee arrears do not become unmanageable. To assist managersin doing this, the monitoring system in place must be fail-safe.
You should consider whether the introduction of deposit payments oradvance payment of fees would be practicable.
Finally, in order to keep other parents from thinking that you are a'soft touch', you must be seen to take appropriate action againstnon-payers, even if this ultimately means taking legal action againstthem.
STAFFING
Your staff remain your greatest asset. You should therefore do all youcan to retain key members and ensure that they all receive propertraining. In addition, you should continue to ensure that all new staffare of the highest quality possible (and, of course, that in recruitingthose staff you comply with the current 'safer recruitment' requirementsand keep abreast of changes such as the forthcoming implementation ofthe Safeguarding Vulnerable Groups Act 2006).
However, you should also have a workforce that reflects the number ofchildren for whom you provide care. If demand for places does decrease,then reducing staffing costs has to be an alternative. Traditional meansof reducing staffing expenditure include: not replacing departing staff;streamlining management and responsibility allowances; retiring staff inaccordance with the statutory retirement procedure and replacing themwith less experienced, cheaper staff; and where appropriate, cuttingovertime for support staff.
If these options are not available, redundancies may be the onlypractical way to rebalance child:staff ratios.
Reducing staffing at the right time can prevent the need for further,more drastic cuts at a later date. A carefully planned procedure shouldalso see the under-performing staff in the areas affected byredundancies being the ones to leave. There are a number ofmisconceptions that surround the redundancy procedure, so to avoidexpensive blunders you should take appropriate advice at an earlystage.
EXPANSION PLANS
Might this be the time to expand by extending your existing premises oradding another setting to your chain?
The immediate effect of the credit crunch has been the difficulty inobtaining loans from banks on attractive terms. This clearly hinders theability to fund any capital project, refurbishment or acquisition thatyou may be considering undertaking.
There is, however, an alternative view. A large proportion of the valueof any nursery business relates to the value of the property from whichit operates. We have seen property prices falling and, given that thereare bargains to be found in the marketplace and that there is asuggestion that borrowing is starting to get cheaper, now could be anopportune moment to add another setting to your business.
- Robert Collier is a partner in Veale Wasbrough's education departmentand heads the firm's early years team. (e-mail rcollier@vwl.co.uk, tel:01179 252 020)
- For details of the Safeguarding Vulnerable Groups Act 2006 seewww.dh.gov.uk/en/Consultations/Liveconsultations/DH_080437