Drawing up a business plan for your nursery is like writing a script for a pitch for funding from the 'Dragon's Den' team - if not quite so scary.
Your potential investors, to whom you will go with the plan, will apply the same general principles that the multi-millionaire executives require of the contestants on the TV show. They will want to know that your planned nursery is a financially viable proposition and your figures add up.
In the current economic climate it is more important than ever to prepare a sound business plan to secure a loan. As Ian Murchie, relationship director in the healthcare team at Barclays Corporate, says, 'We are certainly open for business and lending money to good operators.'
Preparing the document can seem a daunting project, but Mr Murchie says there are sources of help available (see box) - not least your bank manager, who would be able to set out what he or she would like to see included within the plan.
'A common pitfall is for people to make assumptions that are not realistic,' he says. 'It is important for those looking to set up a business for the first time to do their research thoroughly and find out what profits other operators are generating. Be realistic, as it may take a period of time for a new business to generate a profit.
'It is important to put together a good plan. It has to be credible and the assumptions behind it have to be credible.'
A WORKING DOCUMENT
According to Sian Nisbett, director of Dizzy Ducks Day Nurseries in Essex, putting the plan down on paper is what makes it all become more real. Ms Nisbett came to childcare from accountancy.
'It works like a check list,' she says. 'You can see what you have still got to do and tick off the things you have done. With regard to the numbers, it is really sobering to see that it is not going to break even on day one and you have to work out how you are going to finance the business.'
Mr Murchie advises people to undertake detailed work on their forecasts and assumptions and show what would happen under different scenarios were the forecast figures not met. For example, what would be the impact on turnover and profits if the nursery did not hit its projected occupancy figures? Your bank manager should be able to help suggest some suitable scenarios for you to consider.
Abhinav Agarwal, who works in banking, reviewing business plans, is currently drawing up his own business plan to open a nursery in London.
'When I put my children into nursery and found how badly things were run, I just thought I could do it so much better,' he says.
He believes there are two key challenges - the presentation of the plan and collecting all the necessary data. He has been using the Nursery World internet forum to collect information on operating costs.
'You need to know how you are going to operate your business and be able to cost it out. You can get a quote on the cost of software, the cost of setting up a website, or rent on premises. I searched the internet, but you can't necessarily find all the information you need. Sometimes you do have to talk to somebody.'
He adds, 'Some people are over-optimistic when drawing up a business plan and just rely on rough back-of-the-envelope calculations. There are people coming completely cold to the business world who have no idea about business at all.'
A business plan is not just a tool for gaining start-up funding, but a working document that helps you keep track of your business, according to Ms Nisbett.
'I re-visit my business plan all the time because my business is constantly developing and we are always thinking about new settings, new ideas,' she says. 'It is useful to be able to look at the plan and see where I had thought I was going to be and where I am exactly. If your occupancy levels are not what you had thought, you can do something about it before it is too late.
'I know some people claim to keep all the business information in their heads and say they have a feel for numbers. In a climate where 80 per cent of businesses fail in their first year, that is not good enough. You need to be able to monitor how your business is going. The business plan helps you do that.'
The plan also needs to demonstrate your track record if you are looking for finance to expand your existing nursery business. Give details of how long you have been in business, how the business has grown over that time, and how long the management team has been in place.
Mr Murchie adds, 'Another thing I would look at quite closely is the forecast in terms of sales and profits. The plan should also cover how much you are looking to borrow, if there are any other sources of funding - for example, are you planning to put in any of your own money?'
A typical business plan consists of the following:
- A table of contents. List key sections by page number.
- Executive summary. A brief summary of the document must be well written and presented to stand out from the many other business plans the investor is reviewing. In two pages maximum, describe the business, its name, address, objectives, how much you are seeking to borrow, for what purpose and for how long, and how much money you are putting in.
- Sector analysis describing the childcare marketplace, recent trends and developments affecting demand.
- Market analysis describing your specific research - that is, the market gaps you are proposing to fill, your potential clients, other local providers and their strengths and weaknesses, your unique selling points, a SWOT analysis (strengths, weakness, opportunities, threats) for your nursery, your pricing policy.
- Operational plan describing your objectives for the next three years, and highlighting how the nursery will operate. Give details of its legal structure - sole trader, partnership or limited company.
- Features and benefits of your childcare service, such as hours of opening, extended or additional services, curriculum.
- Premises.
- Management team details - their relevant skills, experience, role. Add details of roles of team members to be recruited.
- Implementation plan. If starting a nursery or taking over an existing business, explain steps to be taken before launch - registering with Ofsted, recruiting staff, marketing.
- Marketing plan showing how you will promote the business and what that will cost.
- Financial information on your costs and finances needed to meet them and where you will seek funding. Include a 'risk and sensitivity analysis' - an assessment of what will happen if you don't reach projected occupancy. The cashflow forecast, profit and loss and balance sheet should provide an idea of how your business will perform over time.
- Appendices of supporting information, including your policies and procedures, proof of registration, CVs of your management team. Also give details of all assumptions made to support your financial information, such as anticipated occupancy.
In the 4-17 October Nursery World, our finance feature will focus on pensions
FURTHER INFORMATION
- Business Link, the Government's support and information service for business, has a great deal of practical advice on starting and developing your business, including a section on preparing a business plan, with a downloadable template of a business plans. See: http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073869162
- National Day Nurseries Association publishes Essential Guide to Starting Your Nursery, which includes advice on business plans. The price is £20 for members, £28 for non-members. In conjunction with the Department for Education, it has also developed a costing which can be downloaded for free at www.ndna.org.uk
- Your bank can offer advice and probably has a template for a preparing a business plan.
