At the time of writing, it remains unclear how the childcare sector will be affected by the emerging policies of the new coalition Government. What is clear is the need for the new Government to take measures to stabilise the economic position and provide an environment that supports business growth. This will be the Government's main priority, particularly given that the emergence from recession has been shaky so far and there is a real fear that we may experience a double-dip in the economy, bearing in mind recent events in Greece.
While that difficult path is being navigated by the Government, all businesses, including nurseries, must continue to monitor performance and be sufficiently flexible to react accordingly.
On the assumption that the recovery may be difficult and drawn-out, set out below are suggestions for how nursery operators can deal with certain issues affecting a nursery's financial performance.
Q: The quarterly figures show that the cost levels at my nursery are increasing rapidly. What can I do?
Well-managed businesses are clearly best placed to thrive. First of all, therefore, you need to ensure that you are monitoring the position on a regular basis so that you can spot trends early and take action to address them.
You then need to look at those areas of most concern. In common with most businesses, the largest portion of your outgoings are likely to be costs associated with staffing and property. In order to address staffing costs, you should review staffing levels and ensure that you are getting the best value from any award structures. To address property costs, you should review your lease terms and use of space and, if appropriate, consider rationalising your property portfolio.
Of course, do not look at your expenses only. Consider innovative ways in which you can increase revenue.
Q: My nursery business is over-staffed in certain areas. How should I approach this?
You should have a workforce that reflects the number of children for whom you provide care. If demand for places decreases, then reducing staffing costs has to be an option, however unpalatable this may seem.
Traditional means of reducing staffing expenditure include:
- - not replacing departing staff
- - streamlining management
- - retiring staff in accordance with the statutory retirement procedure
- - where appropriate, cutting overtime.
If these options are not available, however, redundancies may be the only practical 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 should also result in under-performing staff in the areas affected by redundancies being the ones to leave. There are a number of misconceptions that surround the redundancy procedure, so to avoid expensive mistakes, you should take appropriate advice at an early stage.
Q: I am often faced with parents who do not pay their nursery fees. How do I increase my chances of being paid?
It is wholly unfair to ask those parents who pay fees in full and on time to effectively subsidise the places filled by poor payers.
Fees will be due in accordance with the underlying contract, so this should be robust.
You also need a strong manager who can act decisively and will not allow matters to escalate. It needs to be made clear to parents that their child will not be allowed to attend the nursery if fees remain outstanding, and action needs to be taken, particularly as arrears can grow quickly. Barring a child from attending a nursery can be a difficult decision to take.
You are entitled to an explanation if the fees have not been paid or some other arrangement reached. It follows that if parents cannot pay, they should be willing to explain why. The reasons may include domestic problems, business difficulties, redundancy or dissatisfaction with the nursery. It is unacceptable, however, to be given no explanation at all. Sometimes, the most difficult problem to overcome is helping parents to face up to and discuss their financial difficulties with each other.
Some nurseries require large deposits to be paid up front, or even insist on references for prospective parents.
Before you take legal action you should attempt to meet with the parent(s) as soon as possible. The main points to establish are:
- - that the child is happy and doing well at the nursery (experience shows that there is a striking coincidence between non-payment of fees and complaints being raised for the first time)
- - whether the parents can pay in full now, and if not, whether the parents can settle part of the debt now
- - whether both parents are willing to face up to the fact that they cannot pay and discuss constructively the various options, and if not, whether there is any alternative to excluding the child
- - to ensure that the parents understand that the fees are already a debt, that they attract a much higher rate of interest than borrowing from a bank, that they will have to be paid or some alternative found, and that there can be serious financial consequences otherwise.
During the meeting, solutions may present themselves to you. For example, it may be possible to:
- - agree that the parents can repay the debt by means of instalments (agree that you can take security for the debt by means, for example, of a legal charge over the parents' home
- - agree the assignment of any private debt to you
- - refinance the debt through remortgaging their home or taking a bank loan.
Often, the solution may be a combination of these approaches.
Robert Collier is a partner at Veale Wasbrough Vizards and heads its Early Years Team. Contact him on 0117 3145472