Preparing Your Business for the Changes to Funding
The new academic year is well underway, and this year will see one of the biggest changes to funding in recent times. With the 2-year-old funding only 5 months away, have you started looking at how you can prepare the business for the changes that are coming, and also how the sector will change as a result of this funding injection?
There are things you can do now to start preparing, working with your parents and staff to ensure that the setting is ready for the change, and along the way you can keep yourself appraised of how these changes affect your valuation in the market.
Review the Current Setting
Look at the physical and operational set up of the nursery and see how this can be changed to best implement the new changes. Many settings still work to the registration numbers from their Ofsted registration but a remeasure of the rooms may show a potential for extra capacity and open up underutilised space. Operationally, are you staffed to allow for a potential increase in term time only 2 year olds, and do you have income streams that will support the down times? You may want to look at how you manage your funded hours. If you allow full flexibility in the use of the hours, then you could be losing out financially.
Check Your Financials
The changes to funding between now and September 2025 are going to change what your monthly income looks like and your cash flow throughout the year. Look at your current cohort and calculate what amount of current private fees would then be funded and then see how that affects your cash flow when that is being paid once a term rather than monthly. How does this affect your bank balance? Do you have cash reserves to manage while waiting on these payments or are you likely to plunge into the red while waiting to be paid? Are there steps you can take now to prepare for that? This may mean moving large one-off annual payments in line with a funding payment, so it’s not coming out of the bank account a month before the funding is paid and leaving you struggling, or undertaking a cost analysis, (which should be done at least once a year anyway), to make sure that you are getting the best price for all goods and services regardless.
Working with Your Parents
We know that the funding is not actually ‘free’, but the use of that word means that you are facing an uphill battle to educate your parents on how the system works. Look at your current cohort and see who will be impacted by these changes and put together resources for them that explain how the funding works and what is included, and more importantly, excluded in that funding. Look at your parent contracts and see if they are fair to all parties and make changes now before the funding comes into play.
Registration Process
For parents who are only just enrolling in the setting, the funding will be completely alien and they don’t have the experience of a nursery already to know that free does not mean free. As part of your prospectus include the explanation of how funding works and take this opportunity to clearly lay out what there are extra charges for and how their child benefits from them. Emphasis how this money is spent on making their child’s nursery experience better.
Understand Your Business and What it’s Worth.
The interest in day nurseries has grown significantly in the past few years, and the recent announced changes to funding has further fuelled the push to move into the sector. The push from existing operators along with new investors is seeing an increase in value for settings across the country and buyers and lenders alike look to invest in this largely unconsolidated market. This means that your setting value could fluctuate wildly, even if it feels like nothing has changed ‘in house’ as buyers and lenders look to compete in a growing market. Understanding what they are looking for and how your business can adapt to maximise value is key.
Get Help Where You Can
Here at Owen Froebel, we are more than just brokers, we work with Owners in the years before sale to make sure that they understand their valuation and the market to get the best price when that time comes. One way we do that is with a free ‘Business Healthcheck’ with a free of charge and no obligation valuation and comprehensive report going beyond just the financials and focused on how you can continue to grow your business. If you would like more information contact us at www.owenfroebel.co.uk, or on 02475 226930.
