Like the British weather, the forecast for childcare businesses is not clear-cut. The Government's inter-departmental review says, 'there are shortages in most childcare markets,' a view supported by economist Gillian Paul of the Institute of Fiscal Studies. In Using the Family Resources Survey 2002, which asked mothers if they wanted to work and whether they would work longer hours if there was suitable childcare, she concluded that there was 'not enough childcare to meet demand'.
It's a refrain that Rosemary Murphy, chief executive of the National Day Nurseries Association (NDNA), hears constantly from Government ministers.
She tells them that they have to use a wider angled lens to encompass more than the perspective from the Home Counties and London and realise that in other areas Government initiatives to expand childcare could actually pose a threat to existing provision.
Michael Fallon, Just Learning managing director, agrees, 'The Government's view is completely lopsided. On the one hand it wants lots more childcare places, but its initiatives are distorting the market.'
Ms Murphy argues for more regionalisation in childcare planning to take account of existing provision before the spread of further initiatives. 'We have got NHS trusts getting in on the act, add that to Sure Start, neighbourhood nurseries and then put the extended schools in the picture, and the possibility that schools will become providers, and you have real problems on the ground. There is no sustainability package for people who may become unsustainable because of the Government's own initiatives,' she adds.
She challenges the Government assumption that childcare providers have not set up in disadvantaged areas and warns, 'With 45,000 neighbourhood nursery places expected by this time next year, there will be major competition in some areas for children and staff.'
But the DfES states that Early Years Development and Childcare Partnerships (EYDCPs) 'have a specific brief to identify childcare demand and supply in their areas and plan accordingly'. A DfES spokeswoman adds, 'Therefore it is their role to ensure that newly planned provision does not put at risk good quality existing childcare.'
However, the Government's statement on the EYDCPs' pivotal planning role is unlikely to reassure providers since the recent inter-departmental review claimed that 80 per cent of the 150 partnerships are not fulfilling their functions properly and that strategic planning and control is to be shifted back to local authorities.
OCCUPANCY LEVELS FALLING
Jigsaw chief executive Mike McKechnie is candid about the problems facing the sector, 'Every nursery business, whether it will admit it or not, has been squeezed from both ends. On the one hand the marketplace is not being particularly friendly and helpful at the moment. In the corporate world organisations are talking about redundancies so absolute levels of demand are not as buoyant. At the same time there are far more nursery options, so the degree of competition is going up all the time.'
This is borne out by a recent Laing & Buisson survey of more than 700 day nurseries which warned that capacity is outstripping demand, with over one tenth of nursery places now vacant. While capacity rose 16 per cent in the year to January 2003, demand fell by nine per cent, leaving a vacancy rate of 13.5 per cent.
Nursery chains, many of them heavily backed by venture capital on the optimistic, and now seemingly unrealistic, basis of 90 or 95 per cent occupancy, are remodelling their business operations on the basis of 75 per cent occupancy. Mr McKechnie, who says the Jigsaw chain has nevertheless 'made fantastic progress in turnover and profitability in the past 12 months', believes the fall in occupancy partly reflects an increasing desire among parents for flexible, part-time childcare arrangements.
Alan Bentley, Childcare Corporation director, says, 'There is a recession, and there will be several knock-on effects. But one of them is not going to be the number of parents seeking childcare. We still have more people seeking quality childcare than there is available.'
However, the chain is now more cautious when choosing locations. He says, 'We now look more closely at the demographic figures relating to an area, whereas before we would see that there were 30,000 people in an area and decide to site a nursery. Now we look at theoretical sustainability, then at the depth of the competition, the proximity of other major players in an area.'
Childcare Corporation has a department devoted to forging links with companies to create nursery provision. Recently it opened a 125-place nursery in Exeter, situated close to the new Meteorological Office. But Mr Bentley stresses that the chain prefers to run community-based nurseries rather than workplace facilities so that its own commercial viability is not entirely linked to that of a company.
WHERE PROFIT IS NOT KING
Childcare Enterprise runs the Little Apple Day Nursery for Japanese textile company Fuda International in North Shields and has funding there for seven NNI places. The non-profit making chain is tendering for NNI funding in North Yorkshire and Cleveland and quality manager Jan Kidd feels confident of its sustainability as its five-year business plans take account of Government funds tailing off after three years.
She says increasingly employers realise that workplace nurseries make good business sense. 'They really have the effect of retaining valuable staff.
The cost of retraining people if staff leave is far higher in the end than the cost of providing a nursery.'
Rita Hopper, chief executive of the Glasgow-based not-for-profit chain Kidcare, says, 'A quiver in the economy can hit us hard because we don't have a lot of surplus and anything we have goes straight back into the business.'
She says there appears to be 'a lot of money for new places but very little to sustain them'. While some private sector nurseries have raised fees to up to 150 a week, Kidcare still charges less than 100 and is reluctant to increase fees.
The NDNA recently revealed that the typical full-time nursery place cost Pounds 128 a week, which equates to 2.50 an hour for care and education ten hours a day, five days a week. Around 70 per cent of this amount goes directly into staff salaries and pension benefits. The rest pays for equipment, food, heating, buildings and overheads, which include VAT and business rates.
Professor Alan Duncan of Nottingham University believes changes to the Working Families Tax Credit, making households with incomes of up to 58,000 eligible for the new Child Tax Credit could aid childcare sustainability. He points out that there has been a 'remarkable' rise in take up of the childcare tax credit since 1999. But while the April tax changes raise hopes of increased occupancy and cash flow stability, Ms Hopper says that competition for staff is 'ferocious'.
Mr Bentley fears that 'regardless of recession this may be the first year that the shortage of nursery nurses is going to tell on the business. Only those nurseries offering fair wages, good training and career prospects will find it anything other than very difficult'.
He says that Childcare Corporation is currently restructuring its staff remuneration and benefit packages at 'considerable cost to the company to ensure staff retention and satisfaction which are the keys to quality of service'.
Recruitment and retention, already a burning issue for private nurseries, is set to become even harder as neighbourhood nurseries are paying their employees more, says Mr Fallon.
But he adds, 'Staff can be tempted away for a slightly higher salary but to a nursery that may only survive two or three years because it hasn't got that sustainability which you need as it is essentially dependent on public funds which could be cut back.'
Ms Murphy says further competition for staff will come if schools set up childcare. However, she questions whether schools will pay new staff the same as those in the mainstream school. 'If they don't then I can see the unions getting involved,' she adds.
The DfES is at pains to point out that its recent guidance booklet, Childcare in Extended Schools, 'emphasises the importance of schools working with others in their local communities when considering and preparing for the provision of childcare on their premises during the research, consultation, planning and implementation stages'. Competition for older children has always been there, says Mr Fallon, but is now moving down the age groups and will intensify -fuelled by nurseries created as part of the private finance initiative refurbishment of secondary schools in inner city areas.
SAFETY NET FUNDING
Testing times ahead then for nursery businesses. Tucked away in an appendix at the end of the Government's inter-departmental review is a reference to 'a safety net funding mechanism'. However, a DfES spokeswoman says that details of this 'sustainability grant', principally for those in disadvantaged areas, have yet to be finalised.
But the Government has finally announced that A4e has won a contract to deliver an ambitious business training programme. Providers see it as an important vehicle for training and retaining managers and improving the chances of long-term viability.
Nursery providers want these issues settled, but they will also be hoping that the Government's initiatives, be they neighbourhood nurseries, or extended schools, complement existing provision rather than threaten to undermine it.
SUSTAINABILITY TIPS
1 Write a staffing plan and a training plan for all employees. Keep up to date with employment legislation.
2 Look at how you are delivering the curriculum. Consider reviewing it to match parents' demands for flexibility.
3 Market your business effectively by surveying local employers and attend open days at local schools.
4 Tap into the resources of the local chamber of commerce to expand links with local businesses. But avoid dependence on single workplaces.
5 Consider remortgaging to get better deals or to finance nursery changes.
6 Put quality assurance at the heart of your sustainability strategy.
7 Seek advice on accessing funds from your EYDCP business support officer.
8 Get acquainted with Working Families Tax Credit changes so that you can answer parents' queries and ensure maximum take up.
9 Plan your budget on the basis of realistic occupancy levels. Have a contingency plan so you can cope with a sudden fall.
10 Ensure that you are making the best use of your premises. DIVINE INSPIRATION
WITH a waiting list between 18 months and two years, and with the same nursery manager for the past nine years, Shauna Caulfield might be the envy of other nursery owners.
However, she recently faced an agonising choice as she sought the long-term sustainability of Orchard Day Nursery, housed in the basement of a deconsecrated Methodist church in Brighton.
With the upper parts of the church, including the roof, in a state of disrepair, Ms Caulfield considered moving premises, but could not find any.
So she decided to convert the space into three loft apartments, which are now priced at between 215,000 and 225,000. She hopes their sale will cover the cost of renovating the building and ensure the long-term future of the nursery.
'We will use the sale of the flats to pay back loans, any profit will go straight back into the business and it means we can stay here,' she says.
SUSTAINABILITY TOOL KIT
Business support officers in Yorkshire and Humberside are helping to develop a DfES-backed sustainability tool kit to assist childcare businesses across the region.
The tool kit, including a website, has been devised with the help of consultants Playcare Services.
Sheffield's lead officer for Neighbourhood Nurseries Sandra Leivers says, 'It is a very comprehensive tool for development, which emphasises the basic principles of good business planning, and will enable business support workers to go out there and help childcare businesses. Effectively we are piloting it in Yorkshire and Humberside and if it is successful it will be rolled out across the country.
'I think that most business officers would express concern about sustainability, but most are equally keen to support this initiative.'
