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How to grow a nursery business

Published on 28th February 2020 - Last update on 1st March 2020

Nurseries provide an important first step in children’s development, providing a halfway house between home and primary school.

They can also provide a profitable business if you have the patience and childcare skills required. 

There will always be a demand for places in a well-run nursery, but you will need to work hard to make real money.

“I’d been running a nursery for two years and there was always a waiting list. I was not really bringing home enough - but I knew I couldn’t just put the fees up.”

Check how much other nurseries in your area charge. Then work out how many children you will have in your care and how much they will be paying.

All 3 and 4-year olds are eligible for up to 30 hours a week free childcare. You’ll get a payment from the government to cover this at a rate of just £4.30 - so you could expect a minimum of £129.00 per child. If your local area has families who pay much more for nursery places, you may be able to ask the same rates for yours - parents are rarely interested in simply finding the cheapest place, and will be happy to pay a reasonable rate for a place in a nursery where their children will be safe and happy. 

Aginst this, you will have costs to cover. The number of staff you need to employ will depend on the number of children you have in your care. The National Standards for Day Care and Childminding regulations (2003) demand:

  • For children aged up to 2 years: 1 staff member for every three children
  • Children aged 2-3 years: 1 staff member for every four children
  • Children aged from 3-7 years: 1 staff member for every eight children

The average salary for people working in a nursery is £19,000. Remember, you should then use the government's early years qualifications tool to check if someone’s qualifications allow them to work in an early years setting.

The costs of staff, premises and equipment will all be high, and you may discover that you will need a surprisingly large nursery to break even, let alone make a profit. 

“The more children you are caring for, the more profits you will make - but remember you will need more helpers and more equipment - so the extra income is not all coming your way.”

But if you have a calling to run a nursery, it could be the business for you. However, as a look at the figures will confirm, you must achieve a certain minimum number of children to cover the costs. There will be economies of scale, and the more places you have, the greater your profits can be.

This means that to make the most of your nursery business, you will need to grow it.

The problem with growing an established nursery business

The first problem with growing an established nursery business is that many parents - and children, and probably staff - will prefer a smaller facility with a friendly atmosphere. They will actively seek out a small nursery, and be prepared to pay more for a place where there are not too many children competing for attention.

Secondly, there are likely to be physical limits on the size your business can run, imposed by the premises you have. Small children need surprisingly large spaces, and you simply can’t keep adding to your roll every time a parent enquires. The chances are that if your nursery business is being properly run, it will be operating at capacity. There will be no room to squeeze in extra children, and you will probably already have a waiting list.

“We don’t have any more space - even though we have plenty of parents knocking on our door.”

Are you looking at ways to grow your nursery business? See how we can help you secure the finances you need

The solutions

You may be able to relocate your nursery business to another, larger location to overcome the restrictions of size, but relocation is always a challenge for any business. Many parents will not see your nursery as being the same in a new location.

An alternative is to open a second nursery.

This too can be a challenge. Your new location should be close enough to benefit from your current good reputation, but far away enough to not compete with your current site. If you can find suitable premises that meet all the needs of legislation, your business objectives and demanding parents, this will be beneficial. Ideally, your new venture should complement your old one. Smaller children might prefer a small and homely atmosphere where they can develop at their own pace. 30 to 35 places might be ideal as a compromise between an intimate and friendly environment for children and a viable business.

Larger and more outgoing children might be happier in a more spacious environment with more opportunity for active play. It might be possible to provide 60 or 70 places with the right premises.  

Remember that you need to make sure that your first site can run without you before you can take on another. If you are the person who speaks to parents, deals with invoicing, organises the day, reads the stories and wipes noses, as well as the designated manager and safeguarding person, you cannot open another branch. You will have to bring in skilled people to work as managers who you can trust to work in your way and replicate your success. 

Remember, you can't be in two places at once, and you can't afford to take all your good staff from your first site to the second. You may also need to consider hiring administrative staff to assist you with the paperwork - remember your workload will already more than double if you have to fly between your venues all the time.

Finding the right premises and the right staff will bring you up against another challenge - that of funding. 

You already know what the challenges are when it comes to funding your business, and setting up a new branch may involve similar costs. The most significant is likely to be your new premises - which will depend on the size and location of your premises, and where in the country you are situated.

Next, you’ll need to consider staffing costs. These can also vary depending on where in the UK you are. 

There will also be the costs of equipping your new nursery.

Fortunately, there is some good news when it comes to expanding your nursery business. If you have been operating successfully for a year or two, you will find that lenders are much more enthusiastic about lending to you - because you have proved the viability of your business and your own abilities as an owner and manager.

This means that you should be able to secure the funding to grow your nursery business, and to open a second - or even a third or fourth - nursery will cost much less than it did to start up.

A call to Rangewell might be the first step to arranging the funding you need, whatever the plans you have to grow your nursery.

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Richard Mitchell

Richard Mitchell

Content writer
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