Thinking of starting a childcare business

Starting a childcare business is a big commitment and prior to starting you will need to consider existing childcare in your chosen area and ‘demand' for the childcare you want to provide.

Day nurseries offer full and part time care for young children from birth - 5 years (with some registered to care for children up until the age of 11), they operate throughout the year and usually open Monday to Friday from 8am - 6pm. Some nurseries also offer out of school and holiday childcare.

The nursery premises must be appropriate for use by young children and be a home from home environment with an outside play area, a quiet/sleep area, kitchen and changing / toileting facilities.

Sufficient car parking for parents must also be taken into consideration.

CIW Registration (opens in a new tab)

All day nurseries must be registered with the CIW.

The main aims of registration are to promote quality and to protect children, ensuring that they are cared for in safe and suitable surroundings.

A day nursery setting must meet the CIW National Minimum Standards before registration can be granted.

Managing a Day Nursery

• Prior to their appointment, a person in charge (manager) of running the nursery and managing the staff must have  at least 2 years' experience of working in a day care setting. They must hold at least a level 3 qualification recognised on the Care Council for Wales' current list of Accepted Qualifications for the Early Years and Childcare Workforce in Wales, which is appropriate to the post.
• The nursery must have a named deputy who is able to take charge in the absence of the manager.

The Staff

• For full day care at least 80% of the non-supervisory staff must hold a qualification at least at level 2 from the current list of Accepted Qualifications for the Early Years and Childcare Workforce in Wales which is appropriate to the post. At least half of these have a qualification at level 3.
• All staff must undergo a Criminal Records Bureau enhanced disclosure.

Recruitment

• Further information on good practice in the recruitment, management, and supervision of staff is available from Social Care Wales (opens in a new tab)

Staffing ratios 

In day care the minimum staffing ratios are:

• One adult to three children under 2 years
• One adult to four children aged 2 years
• One adult to eight children aged 3 - 7 years

These ratios include any children of staff or volunteers and apply to any activity including escorting and transporting children.

Regular volunteers can be taken into account in the normal staffing ratios

In full day care only, the manager should not be included in any calculation of adult: child ratios

Market research

In order to determine whether there is a demand for the service you intend to offer, you will need to carry out some market research.

The aim of market research is for you to make the right choice when beginning your new venture. You need very specific information and need to ask the right questions to the right people.

Below are some examples of questions for you to begin your research:

Your customers:

• Who are your customers?
• What age will you cater for?
• How much are your customers willing to pay?
• How many children would be attending?

Your competitors:

• Who are your competitors?
• Can you identify any gaps?
• What service are your competitors offering?
• How much do they charge?
• What activities do they offer?

How will your service be better, why will a parent want to pay for their child to attend your setting?

You can design a simple questionnaire, visit parent and toddler groups or carry out market research at local schools or supermarkets (you must ask permission before you do so)

Existing provision

When looking at opening a new childcare provision it is very important to see what services other provisions are offering in your chosen area, things to look out for are:

• Price range - are these per hour, per week or per month?
• Vacancies - by age range
• Is there a waiting list?
• Opening hours - are unsociable hours offered?
• Location - accessible by public transport, are there good links?
• Service offered
• Languages spoken

Financial viability

It is important to be realistic about costs and to be aware of the cost implications of caring for different age groups.  Babies and toddlers require more space, more facilities and a much higher staff ratio than for older children. Some of the costs you need to consider are:

•  Purchase and lease of premises
• Cost of legal fees, architect's fees etc.
• Conversion costs
• Equipment
• Registration
• Running costs
• Insurance
• Wages

Remember that most new childcare businesses take time to get up and running so this may mean making a loss or just breaking even for a number of months until your business is well established.

Fee structure 

Whilst it is tempting to introduce a range of fees for differing circumstances e.g. a second child, it is advisable to maintain a structure with a minimum number of fee rates to avoid complications (both for staff to implement and parent/carers to understand). However, when considering additional rates or an increase to existing rates it is essential to consider internal breakeven points and the external forces of local competitor rates that the setting needs to be in line with.

Calculating breakeven points

In very loose terms the breakeven point can be considered as the amount of income required to cover the outgoings of the setting. 

Sources of funding

Once you have looked at how much your project is likely to cost you need to determine how you will raise finances. The most likely source of funding is through a bank loan. For any funding applications you will need to develop a business plan. 

Business Plan

What should be in a business plan?

Summary - The executive summary is usually contained on a single sheet of paper at the front of your business plan - it summarises what you intend to do, plus why, when and how.

Aims and objectives - This short section, usually not more than a single page, sets out your overall aims and more detailed objectives.

Background - It is useful to set the scene for the business plan by describing what your project/business is now, perhaps, or who you are, what your experience is and why you want to do what you are proposing.

Management structure - a hierarchical chart showing staffing at your setting.

Market research - This section of your business plan is one of the most important - it is where you need to demonstrate the need or demand for your new services 

Marketing strategy

Strengths weaknesses opportunities and threats - A simple 'SWOT' analysis will help you see the strengths and weaknesses of your project, as well as the opportunities and threats you should bear in mind.

Operational plan - The operational plan should include timelines indicating what is going to happen, when, and who will be responsible for the action.  

Financial information - This part of your business plan is one of the most important - many lenders and grant-givers will read the executive summary and then turn straight to the finances.

Appendices - An appendix is simply a document, attached to a business plan, which offers additional, more detailed information to that given in the body of the plan.

Financial record keeping

It is very important that business and personal financial records are kept separate. This makes it easier to complete your income tax returns.

The ‘books' you need to keep include:

Cash book - this is the place where receipts (money paid in) and payments (money paid out) each day are recorded. The cash book should match the bank statement.

Balance sheet - Your balance sheet is a snapshot that shows how much the business is worth at any one time. It details what assets the business owns and deducts what the business owes (known as ‘liabilities'). It also gives a good idea of how solvent your business is and how it is financed.

Wages book - If you employ staff you'll need to record what you pay them, as well as their National Insurance Contributions (NICs). HM Revenue & Customs (HMRC) requires all employers to calculate NICs either monthly or quarterly.

Fee records - It is important to record all your fees to parents month by month, and to split them into ‘fees unpaid' and ‘fees paid'. This way, you can see easily what is owed to you and how quickly you were paid. Number your invoices in sequence so that each one is easy to identify. 

Purchase records. - Your purchase records should have separate files for paid and unpaid invoices. This means you will be able to see what you owe. Always remember to ask for an invoice or a receipt for your records.

Budget

When creating a budget it is important not to use inaccurate figures and you will need to look at information from previous years to predict your finances for the coming year. As a minimum you should try to have budgeted figures for:

Income - from fees, funding, fundraising and any other sources such as bank loans or donations.

Expenditure - this includes regular costs of operating the business such as wages, national insurance, premises, utilities (bills), insurance, as well as expenditure on training, stationery and consumables.

Cash flow

For you to stay afloat, the money flowing into your business needs to be the same as - and ideally more than - the money flowing out. This is called cash flow, and you can keep track of it by monitoring your ‘receipts' and ‘payments' each month:

•  Receipts include money you make from fees, bank loans, money you have put into the business yourself (for example, savings), money you have made from selling assets.
• Payments include cash paid for buying supplies and covering expenses, repayments for loans, the purchase of assets (such as a computer), as well as VAT, PAYE, National Insurance Contributions and wages.

If the money coming into your business is less than the money leaving it, your business will fail in the long term. In the short term, you need to have enough cash on hand to pay bills.

Annual profit and loss statement

At the end of each trading period, usually a year, a business needs to look back and see whether it has made a profit or a loss. The annual profit and loss statement provides this information.

The profit and loss summarises all income and expenditure in that year. This is the accumulation of all your other finance reports and this will help with forward planning when you come to prepare the budget for the following year.  

Further support and guidance on setting up a day nursery is available from:

National Day Nursery Association Cymru (NDNA Cymru) (opens in a new tab)

The NDNA can provide help, support and guidance on setting up a nursery and has a comprehensive website with useful information on policies, procedures and good practice.