How to set up a nursery

The information below is intended to be used as guidance about what you will need to consider when setting up your own nursery. It does not cover each area in detail but will give you an overview of what to consider and where to go for more information.

Market research

The nursery sector is a unique commercial environment, one that can change fast as the latest trend in provision takes off. Not only that but both parental and children’s needs vary from place to place. To be a success, a nursery business has to meet the specific needs of its catchment area.

The following are some jumping off points for a new nursery to consider based on Morton Michel’s experience in the childcare sector.

Local needs - Make contact with the relevant local authority and see what provision they feel they are lacking. A good relationship with a local authority can go a long way to building a successful nursery business over time.

Other childcare businesses in the area. To begin with, you can download a list of registered providers from the relevant regulator; Ofsted in England, the Care Inspectorate in Scotland, The Care Inspectorate Wales in Wales, and your local authority in Ireland.

Local demographics - Prosperous areas have different needs to those with high levels of deprivation. Take-up of benefits and entitlements may be different, as may expectations for what you will be expected to deliver.

Demand for day-care - Although full-day care is becoming much more popular, sessional care has not gone away, particularly in areas with well organised and supported childminders. Take a look at parenting groups on social media and see what people are asking for.

Morton Michel has over half a century’s experience of the childcare sector and we have built our reputation on understanding it inside and out. You can find out more through our magazines, newsletters and by getting in touch.

Business structure

As a general rule, most nurseries operate as limited companies, although charities and partnerships are not uncommon. There are some matters to be aware of when deciding your business structure, based on Morton Michel’s experience of the childcare sector:

Liability is an important consideration when deciding a business structure. Incorporation is the usual route to minimise your personal risk, although you should still ensure you have Directors and Officers cover, as you can still incur liabilities in some circumstances.

Property - For businesses that own their own premises it is not uncommon to set up different companies for managing the nursery business and its assets. This can be a complex arrangement however and you will need to ensure you have taken appropriate specialist advice.

Franchising - This may be an option. There are several nursery franchises available, which can be an excellent option for new entrants to the market. Likewise for established nursery businesses looking to expand, franchising your model can be a cost-effective way to build your business.

Charity status - Charitable nursery businesses should also consider the structure you want to adopt. Charitable Companies, Charitable Incorporated Organisations and a new hybrid commercial-charity structure called a Community Interest Company are all options.

Unincorporated associations - Businesses who chose to remain unincorporated should ensure that their trustees and officers are protected by an appropriate insurance policy.

Morton Michel’s Nursery Care insurance packages include options suited to every business structure, and also include access to specialist legal support packages. You can find out more by getting in touch.

Business plan

A nursery’s business plan must take into account the unique features of operating in the childcare sector. New entrants should ensure they have a clear understanding of the market and the regulatory environment in which you will be operating. Be careful not to be mislead by assumptions based on headlines, or experiences within a limited division of the sector.

The following are some particular considerations that you may wish to reflect upon when constructing your business plan:

Finance and funding - You may want to consider private equity funding sources. Investors are increasingly looking at the childcare sector as a strong long-term prospect. There are numerous introducer agencies who can help you make connections with sources of finance.

Government subsidies - These are playing a greater role in childcare than ever before, but vary substantially from area to area. In some, they may be more than enough to break even. In others they might need to be supplemented, but there may also be restrictions on how they can be topped up.

Fees and charges - Look carefully at what you charge for as an option and what is included in your regular fees. Will parents really be happy having to pay for nappies, or would charging for food be more amenable. Are there any easy wins, popular added extras that will help drive revenue?

Local environment - Take-up of subsidised places a varies regionally and a nursery’s business plan should take into account local demand or be prepared with a strategy to disrupt it. For example, by providing help for parents to access subsidies, or developing an offer that is strong enough to attract parents who are prepared to pay privately.

Future planning - Consider the size of your setting and the scope for expansion. Regulators set minimum requirements for space per child and this could limit your growth. Similarly, if you are hiring a multi-use space, this might limit your ability to increase your operating hours. There has been a growing trend in recent years towards settings with 60+ places operating for 10 or more hours per day. If you do not intend to fit into this trend, make sure you understand the challenges it will entail.

At Morton Michel we are used to supporting highly creative, innovative childcare businesses, and we are always happy to discuss new businesses’ needs. Contact us to find out more.

Choosing a site

Until relatively recently a purpose-built nursery was a rare beast indeed, but as demand for childcare grows and becomes more sophisticated, it may well be the way of the future. This does not mean that every setting must invest a fortune in constructing a property from scratch, but it does mean there are lessons to learn from the trend.

Other factors too are relevant to where a nursery should be sited. The following possible considerations come from Morton Michel’s knowledge of where successful nurseries site their businesses:

Floorspace - Childcare regulators set minimum space requirements that have to be observed. The site you choose will ultimately limit the capacity of your setting.

Potential hazards - Safety is paramount, keep it in mind at all times. For example, if your chosen site has multiple floors, look at the staircases to ensure they are child friendly.

Local area - Access to outside space is important and if your nursery does not have its own grounds, there may be other options. However, you should take care to be realistic about walking distances to local parks and playgrounds.

Air pollution - The quality of air near children's facilities has been in the headlines recently. Find out from the local authority whether it is a concern at your chosen site.

Road safety - Consider how parents are going to bring their children to your nursery. Examine parking and street crossings in particular and check they are easy to use and do not encourage unsafe practices such as dashing across busy roads.

Sharing spaces - It may be worth exploring co-location opportunities. For example, there has been a recent push for retirement homes to incorporate nurseries so as to deliver the benefits of intergenerational interaction. Many indoor play centres are also starting to open nursery provision.

Valuation - If you are buying your premises, have your location properly valued to help avoid being under-insured.

Early Education Regulations

All nurseries in the UK are required to comply with particular regulatory requirements, created under the Childcare Act 2006 and enforced by regulators. Some of these regulations, such as those specifically concerned with learning and development are devolved areas of policy and differ between England, Scotland and Wales. Northern Ireland meanwhile operates a separate regulatory regime administered by local authorities.

Wherever your nursery is based however, you will be expected to fully comprehend and abide by the regulatory requirements. Official guidance from the respective governments can be found here:

England: The Early Years Foundation Stage
Scotland: Early Learning and Childcare
Wales: Foundation Phase
Northern Ireland: NI Direct - Day Nurseries

Every regulatory regime in the UK requires nurseries to obtain appropriate insurance. Morton Michel’s Nursery Care policy has been specifically tailored to meet this obligation. Not only that, but our Childcare Club includes training packages that will help ensure you meet other regulatory requirements.

Registration

All day nurseries in the UK must register with a regulator. These organisations are responsible for ensuring that childcare settings meet exacting minimum standards and also for grading them on their effectiveness. These grades are crucial to a nursery’s success. Not only are they a key indicator for parents as to your setting’s quality, but achieving higher grades can be a requirement for being able to offer subsidised hours.

Each of the home nations has its own regulator and regulatory framework:

England - Ofsted is England’s register. It operates two registers. The Early Years Register, which accounts for all childcare providers who offer the Early Years Foundation Stage, and the Childcare Register, which accounts for all other childcare providers (such as those who operate for very limited hours, or solely with older children). The Childcare Register is split into compulsory and voluntary components. Ofsted’s official guidance can be found here.

Scotland - Childcare in Scotland is regulated by the Care Inspectorate. It is responsible for registering and inspecting day care providers. In some circumstances they may also check the financial viability of the service being offered. The Care Inspectorate’s registration page can be found here.

Wales - Day Nurseries in Wales must register with the Care Inspectorate Wales. It is responsible for inspecting and regulating all private care services in the country. CIW’s registration page can be found here.

Northern Ireland - In Northern Ireland, nurseries are still regulated by Health and Social Care Trusts (HSC). Each trust has an Early Years Team that is responsible for annually inspecting childcare settings and ensuring they meet minimum standards. Information from the Northern Irish government on local Early Years Teams can be found here.