During a time of austerity, when an increasing number of parents may be struggling to pay fees and local authorities are tightening their belts, it is more important than ever that nursery groups manage their finances efficiently.
This means ensuring meticulous day-to-day management of expenditure while also adhering to a financial overview that is designed to ensure sustainability - no easy matter in the current climate, when all costs are soaring.
What has not changed in recent years is that staff wages remain the highest cost, but the problem is exacerbated by the fact that nurseries are currently reluctant to raise fees.
Sarah Steel, managing director at the Old Station Nursery, believes that for large groups, staff costs can be around 58 per cent of revenue, but among smaller groups, or those with buildings that can be used less efficiently, it could be 70 per cent or higher.
'Then there are also overheads like rents, rates and utilities,' she says. 'And things like insurance, which can be significant.'
As well as these fixed costs, there are those, such as food and resources, that vary according to the number of children attending. Meanwhile, utilities have risen sharply and fees charged by specialist teachers, such as music or dance, have also gone up.
'People like this may have held their prices for a bit during the recession but now they have had to put them up a bit,' she says.
When juggling all of these costs, alongside managing payments from parents, it is important to carefully manage cash flow.
'Cash is king,' Ms Steel asserts. 'Someone in charge needs to know exactly how much there is, but one of the challenges is that it's quite cyclical. It's all about managing your bills carefully to ensure good cash flow.'
She adds that it alarms her when she speaks to a nursery owner and they do not know what kind of financial year they are having compared to last year. At the Old Station Nursery, all managers are expected to know whether it is a good or bad month.
Other chains agree that it is important for nursery managers to be on top of finances. 'Managers are aware of their budget and spend within that,' says Ruth Pimentel, chief executive of Toad Hall. 'If they go over their budget they come to head office for approval. Most managers have quite good business awareness. It's rare that we have to restrict them too much.'
She says the biggest area she likes managers to be on top of is occupancy levels. 'If that starts to drop that can quickly have quite a big impact,' she says. 'They need to keep an eye on occupancy at least six months in advance.'
Other financial priorities are fee payments, weekly food orders and stationary and toy orders. 'Managers also need to ensure they get actual readings on utility bills and don't just do an estimate,' she says.
THE BIG PICTURE
Other groups are keen to ensure that their managers are not only aware of their own nursery's finances but also understand the position of the other nurseries in the group.
Rad Sofronijevic, head of childcare operations at the Co-operative Childcare, says her organisation sends out information to nurseries on a daily, weekly and monthly basis. This includes forecast occupancy reports, a weekly sales report in pounds, and salaries as a percentage of sales and against the number of children attending each nursery.
Managers are also provided with a simplified version of certain pieces of information so they can share it on a staff board. 'The most important thing is visibility,' says Ms Sofronijevic. 'The more information you give people about how they are performing in all aspects, the more they will put into it and do something about it if it is not going well.'
Mike Abbott, group manager at the Co-operative Childcare, explains that the organisation has a culture of openness. 'Because we manage nurseries as a large group, we encourage them all to communicate,' he says. 'If they see someone else doing well, we try to foster an atmosphere where they will pick up the phone for advice.'
As staff is the biggest cost that nurseries face, many have rigorous processes to ensure that money is not wasted on taking on more staff than necessary. 'This is a crucial area of management for us,' says Alan Bentley, chairman and chief executive of Kiddi Caru. 'Our key management performance indicator is the staff-to-occupancy relationship. If that isn't as efficient as possible, you can lose money.'
To ensure efficiency here, Mr Bentley says temporary staff can be brought in by managers if there are more children than usual. He adds that at an organisational level, staffing is carefully monitored using Coldharbour Systems' operational tool for the nursery sector. 'We can look at it to see how many staff and children we have, and we can do that on a room-on-room basis,' he explains.
The system even allows the nursery to focus on nitty gritty areas such as how much it has spent on food per child each month. 'All the different variables can be measured against the Coldharbour database to see if they are what we predicted they should be,' he says.
Others are also scrupulous when it comes to staff levels. Peter Churchley, managing director of Caring Daycare, says he has an operational team that works with nursery managers to plan staffing a week in advance.
'They work out the staff requirements and discuss it with the area team, which allows us to use any surplus staff from one nursery to cover any gaps in another nearby nursery,' he says. 'Combined with bank staff, that means we have low use of agency staff, which are 50 per cent more expensive than core staff.'
Additionally, he says that each day managers input their levels of staffing into a computer system, so that staff can be moved around on the day itself if necessary. Alongside these efficiency measures, the organisation runs 12-week-forward occupancy reports for its nurseries.
'You have to take a three-month view to look at your forward bookings,' Mr Churchley says. 'Then you can adjust things like staffing and expenditure. Also, every time you lose a member of staff you can decide whether it is going to be necessary to recruit a replacement.'
TAKING CONTROL
Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA), agrees that there is certain financial information all nursery owners and managers should have at their fingertips. 'They should know their break-even point and should have a record of all income and outgoings to enable them to see clearly if they are making a profit or working at a loss,' she says. 'This will enable them to budget successfully in specific areas.'
NDNA provides support for any nurseries that may be struggling with financial management, including an online system called Nursery Calcul8. The tool enables nurseries to develop and manage budgets, and supports nurseries to carry out detailed operational scenario planning quickly and easily, with no accounting knowledge required.
'It is vital that the right person deals with the finance side of the business,' explains Ms Tanuku. 'But with systems now such as Nursery Calcul8 you do not need to have any accounting knowledge to carry out detailed operational scenario planning quickly and easily and take control of your business.'
CASE STUDY: LEYF
Clare Henderson joined social enterprise nursery group London Early Years Foundation (LEYF) in July as its financial controller. 'My role is a new position that's been created because the management team has recognised that with increased reductions in available funding for organisations like ourselves there's a need to take a more commercial approach to our finance,' she says.
Ms Henderson came from a commercial background, which she hopes will help her bring more sustainability to the finance at LEYF. Already this year there has been a big push for it to become more efficient, and this is being topped up by financial awareness training for managers in October and November.
'Nursery managers send their income and expenditure figures to head office every week, then these figures are consolidated so that nurseries can find out each month whether they are making a surplus or a deficit. Managers are provided with an easy-to-use spreadsheet for budgeting and with targets to meet each year for income and expenditure,' says Ms Henderson.
The organisation also has a manager who specifically oversees fees, and who helps nursery managers collect any late fees, as often managers can feel a little uncomfortable doing this.
'We want to make sure financial information about each nursery comes through to head office quickly. If accounts are delayed it can be a lot more difficult to rectify a bad situation,' she says. 'We're also trying to free up managers' time so they can spend more time with children, and not be constantly stuck in an office working on finance.'
