Q How do you think the sector is going to fare if we go into another recession?
A In this cycle we've got some incredibly different, un-tested, and interesting economic factors at play. I don't believe we're going to see spiralling unemployment, which ultimately means that because of labour shortages stemming from Brexit, parents will ultimately remain employed and occupancy levels in nurseries will be maintained. As long as nurseries can cope with demand through their own staffing issues, the sector should be well placed to continue. Private equity groups are continuing their buy-and-build strategies, and I don't expect to see any changes to M&A activity in the short term.
Q What can nurseries do now to future-proof their businesses?
A With staff shortages continuing to hurt the sector, taking on younger staff at an early stage in their career, and providing training, career advancement and progression, is more critical than it's ever been.
The other area that’s increasingly becoming more important, which I've noticed as a funder and observer, is technological advancements in this space. Apps and email updates for parents throughout the day are becoming a hygiene factor of the sector. Ultimately, this is going to increase to maintain your relevance in the market. And in a sector that's remaining competitive, I think that being able to differentiate and stay ahead of the curve is critical.
Q What investments should nurseries be making to get them through this period and potentially put them in a stronger position?
A Cash is king, so after health and safety considerations are taken into account, maintaining cash is key. Mandatory capex and spending on premises needs to be maintained and providers need to keep up the standards that parents have become accustomed to in order to avoid seeing parents move their children to other settings. This is critical but there also needs to be some balance around growth, sustainable expenditure, and managing cashflow properly.
Q How do you create a sustainable as in a profitable, robust business model?
A It's skill of management. Ultimately, it’s about managing cashflow vis a vis expenditure. The same principles apply to every business. It's about understanding requirements for maintenance, ensuring that you go beyond simple regulatory requirements, making sure your settings remain relevant and your business model remains at the forefront. I think technology helps - it attracts more parents. It's also about appropriate advertising and marketing. And you've got to keep your eye on cashflow. So many entrepreneurs and business owners spend more than they have. Cash remains King.
Q How important is innovation
A Site selection is massive. We’ve worked with Strawberry Fields Nursery in the north of England, which has an integrated swimming pool as part of its offer, which has been extended to parents’ use, with a café on-site. It’s unique and a great example of trying to remain relevant, increase usage, increase penetration through the setting, and create more of a captive audience. We also backed ICP Education from 2017 which grew heavily and again, for them site selection was critical. The business, which was being led by Tracey Storey, was sold to Oakley Capital in June 2021. We’re now backing Tracey’s new venture, Melrose Education, which focuses on special educational needs (SEN) schools. It’s interesting because the settings are non-traditional and not in line with where the market has been historically. They are acquiring office space, non-high street locations, and finding opportunities to find space at more competitive rent and cost levels.
Q How long might it take for innovation to give a solid financial return?
A The greatest tool in this industry is stakeholder buy-in and word-of-mouth. Maintaining those standards of excellence and really trying to focus on that experience for your stakeholders or your parents and carers, is probably the most critical thing. When you’re an entirely new setting in a new area, you have to take a reasonably mid-to-long term view on financial returns. Strawberry Fields, for example, is a brand-new setting in quite a captive location. Clearly, given the innovative nature of what they've built and investment they’ve made, there’s going to be a hefty payback period, but they’re confident it’s going to give them a solid return in the long-run.’
For more information, please visit https://www.oaknorth.co.uk/business-loans/childcare-education/
First published on Early Years Educator 08/08/2022
