How To Finance Nursery Group Expansions

If you’re running a children’s nursery, chances are that you’ve considered how you can grow your business. With fixed costs and a cap on how many children your premises can safely care for, the most logical route for growth is to open a second nursery. This is how most nursery groups begin, growing from a single setting into a larger network of nurseries.

Whilst this may sound ambitious, it’s more realistic than you may think. Provided your existing nursery is performing well, expanding a nursery business is usually just a case of the right level of preparation and planning. The most important thing is to ensure you have the financial resources required to acquire/launch a new nursery, equip it sufficiently and pay for ongoing costs. 

You may already have an existing nursery group with multiple businesses underway. If you’re looking to expand further, the same considerations will apply. In this guide, we’ll cover the main considerations for financing your nursery group expansion plans.

Here at Rangewell, we can support you directly by working with you to determine the most suitable lenders and types of finance for your goals. We’ll negotiate on your behalf and arrange the funds you need to grow your business, all at no cost to you. Get in touch now or read on to find out more about how financing nursery groups works. 

Assessing your current business

Expansion is either done as a pragmatic reaction to increasing demand, or as an ambitious move to grow your brand. As demand for childcare grows, you are limited by your available space and employee roster. 

As any experienced owner knows, the Statuatory Framework for Early Years Foundation and Ofsted both make clear their expectations around the space and care demands required by children of varying age groups. 

For example, children under two require at least 3.5m2 of space and there must be at least one dedicated member of staff for every three under-two-year-olds in your nursery. Due to these restrictions around child supervision and space, you can’t simply accept more children into your care or hire more staff – you need to plan an expansion to cater to the rising demand. 

Before you instigate any plans, you need to assess your existing business under the same scrutiny that a lender may hold you to. That means looking at your financial records, your reputation and reviews, your lease conditions (if applicable) and any other matters that may cause a lender to hesitate. 

Structuring your management team

As an expanding nursery group, your operating structure is absolutely crucial to your ongoing success and your chances of securing better finance agreements.

If you’re currently the sole owner of a single setting and want to start a group, you’ll need to consider whether you have a capable manager already in your roster and offer them a promotion – or look elsewhere to hire someone with the right experience. 

If you’re already an owner within a group, each new acquisition is a chance to reassess the management team. Are you achieving stable results across each site, or are there particular areas in which you’re lacking? Is the new nursery already staffed with a manager, or will you need to hire another? 

Choosing experienced managers isn’t just necessary due to Ofsted requirements – it’s also something lenders will want to see evidence of whenever you apply for finance. Nursery managers with lots of experience will generally command more confidence and permit you to secure a stronger loan agreement than those with less experience. 

Financial considerations for expansion 

Before pursuing your expansion plans, you need to consider your financial situation. Nurseries tend to expect margins between 20-30%, but only when they’ve been running profitably for a stable period.

If your nursery has been successful, you will likely have some cash you wish to reinvest in the growth of your business, but you need to be careful about how you use your capital effectively. In most cases, the best use of cash belonging to you or the business is to plug the shortfall of any lender offer.

For example, if you needed a commercial mortgage to buy a property for the nursery, your cash can be used as a deposit since lenders will often only offer 60-80% LTV. 

Expansion is only the first step too; you need to ensure you have cash reserves left once you open the new nursery. You need capital to pay the operating costs associated with running the business until it can deliver profit. Some owners with extremely high demand in their local area can quickly 

In most cases, businesses require support from lenders to buy their competitors or start new businesses from scratch. 

Options for expansion

As occupancy levels grow, nursery managers must make difficult decisions around capacity. You may be able to expand your existing premises, either by converting or constructing new buildings on land that you own, or purchasing a neighbouring property. However, this can be a significantly expensive project and relies on your business acquiring planning permission to carry out that sort of work. 

Instead, most nurseries will look to expand by either acquiring another existing nursery business. Buying a nursery means cutting out many of the challenges associated with starting from scratch.

Buying a nursery to expand

Ordinarily, buying a nursery involves lots of research into your target market and location. As an existing nursery owner, however, you will already have some idea of the market in your area and will likely know where you need to consider in order to fulfil rising demand. 

Of course, that’s not always the case - you might also look to expand your nursery beyond your original geographic area, leveraging your positive brand reputation in new locations and hopefully building a new stream of customers. 

In both scenarios, whether locally or further afield, you need to research listings and assess the value of the nurseries for sale. The valuation given by a selling agent is not the same as the valuation a potential lender will come to, so you need to scrutinise the business and make sure its value matches your plans. 

There’s a lot more to buying a nursery business than what we’ve covered here. Fortunately, we have a comprehensive resource here on our site. See our guide to how to buy a nursery to learn more. 

Building a new nursery

If there are no nurseries for sale in your target area, you can either expand your search radius or begin developing plans to launch a new nursery. To do that, you’ll need to find suitable premises or land and then apply for planning permission from the local authority.

You’ll then need to carry out development work to create a suitable nursery, which will either involve converting existing property or building from scratch. In either case, you will likely need finance to fund the project.

Property development finance generally expects the applicant to have experience in development projects. If you’re a nursery manager and you’ve never dealt with construction before, you may need to hire a construction manager to represent your case and show lenders how you intend to carry out the work. 

Lending decisions will involve an assessment of every part of your project. Lenders will look at your chosen contractors, your timeline, planning considerations and anything else. They will also come up with a valuation for the finished property in terms of its bricks and mortar value, which will be different to the value you put forward (which will be based on the projected value of your business operating from the property.) 

Some potential nursery acquisitions will fall under ‘Permitted Development Rights’ (PDR). If you buy a Class E property such as a shop, office or restaurant, you can convert it into a nursery without planning permission. When developing under PDR you can streamline the entire process – including securing finance. See permitted development finance to learn more. 

The complexities of property financing make it a topic best suited to a one-to-one consultation. Here at Rangewell, we help nursery owners and other businesses commence ambitious property development projects by discussing how finance can help you, what you need to know before you apply and then guiding clients through the application and negotiation stages. 

Your nursery plans will be unique to you, so it’s better to get in touch with our team early to get advice on how to maximise your property development loan. 

Establishing and maintaining standards

To be able to consider expanding a nursery group, the existing businesses should be performing well and demand should be rising. Otherwise, it won’t be financially viable. A nursery group that is looking to expand should therefore already have a good reputation with parents and with regulatory bodies like Ofsted. 

Once plans for expansion are underway, you can’t afford to let those standards slip. Each site is now a representation of your business as a whole – so you need to ensure the levels of care, parental satisfaction and employee performance are maintained in your new facility in the same way as in your existing sites. 

To help maintain these standards, create a group operating procedure that outlines how each site is managed. This will help streamline overall operations and keep all nurseries working in the same way.

Changes to these procedures should be suggested and then decided on, which will help prevent instances where one of your nurseries does something differently due to the ideas of a manager or another staff member. 

Finance your expansion with Rangewell

Expanding a nursery group is an exciting time. Whether you’re considering capitalising on demand to buy out a competitor, build a new nursery in your existing area, or grow your brand further afield, finance can help. 

Talk to Rangewell before speaking to lenders. We can help you identify the right options from the vast lending market, tailoring your search to lenders who are experienced in the children’s day nursery business model.

We’ll help you strengthen your business plan and apply, then negotiate a deal on your behalf to guarantee the best loan offer for your needs.