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|DEVELOPING AND WRITING A CHILDCARE BUSINESS PLAN |

An Introduction to Business Planning for Childcare Settings

WHY DO WE NEED ONE AT ALL?

Yes, it can be a pain to have to prepare a Business Plan for your Childcare Setting, but there are two important reasons why you should always have one:

1. Practically all Funding Bodies will want to see your Business Plan before they’ll consider making a significant Grant or Loan to your Setting, whether it’s for a specific new project or for the operation overall. Since you’ve got no choice, you may as well make a good job of it anyway!

2. It’s good practice, because it helps clarify your ideas about what you’re doing, how well you’re doing, and where you’re going – all too easily forgotten in the hurly-burly of just running your Setting day-to-day. Just as you try to use good childcare practice, so you should try to use good business practice - because whether or not you’re aiming to make a profit, make no mistake about it - you are running a small business here!

SO WHAT IS A BUSINESS PLAN, THEN?

It’s a document that sets out:

❖ What your Organisation is about, and who the key people are

❖ What you do now – and what you’re proposing to do in the medium and longer-term

❖ Where, when and how you’ll do it

❖ How much money you need – and where you expect and hope to get it from

❖ What ‘success’ will look like – and how you’ll measure progress in getting there

Sometimes a Plan just needs to be a routine review of ongoing operations for the coming Financial Year. Other times, though, it may need to be part of a bid to obtain funding for an expansion or an entirely new project. It’s highly unlikely anyone will give (or lend) money to you unless they think your organisation is basically competent at what it does, and has a realistic chance of achieving its objectives. For this reason, it’s essential your Plan is well-written and shows clearly that, not only can you do what you promise, but also that you’ve thought about what challenges might get in the way, and how you’ll deal with them.

Any Funding Organisation or Bank will respect you, and give you more credibility, for actually identifying such issues, rather than refusing even to accept the possibility something might go wrong (which just makes you look naïve).

WHO WRITES OUR BUSINESS PLAN?

You write it yourselves. And that’s important!

Yes, we can assist to some extent – so can other organisations like Nottinghamshire Business Venture, First Enterprise, Business Link, Community Accounting Plus, your Accountants . . . but at the end of the day, whoever helps you or actually puts down the words on paper, the Plan itself has to contain your ideas, your hopes and expectations of what you intend to do.

Because if it doesn’t, it’s not your plan, but their plan – you and your Committee or co-Owners, your Managers and Supervisors etc. won’t actually feel any sense of ‘ownership’. Without that, even if you get the funding, the Plan will just get stuck in a drawer and forgotten. Then you’ll drift aimlessly, events and big bills will always come as a surprise, you probably won’t monitor progress so you won’t spot a problem until it’s already become a crisis . . . get the idea?

It’s usually best if only one or two people actually write the text – one who understands the Project and can see the ‘big picture’ issues, and one who knows about the financial side and can prepare (or at least understand the implications of) the numbers. You can always give a copy of your first Draft to your colleagues and invite comments before it’s finalised.

AND WHAT SHOULD IT LOOK LIKE?

To an extent that’s a bit like “how long is a piece of string”. The best we can say is that it should be full enough to cover all the important information, but not so long and complex the reader gets lost or bored.

Some Funding Organisations set out very specifically what they expect to see in a Business Plan. Others expect you to use a particular template or computer programme. In that case you get little choice about format and content. But where you do have reasonable flexibility, our general view is that the main text part of the Plan document should be not less than 4-5, but not more than about 12-14 pages long.

The following are examples of the kinds of key points that should be mentioned briefly in the main text - but so as not to clutter-up the flow of the explanations, the detailed supporting documentation should be separated and put into Appendices:

❖ Curriculum Vitae of key people (Manager, Chairman, Director etc.)

❖ Financial Forecasts (Cash Flows etc.)

❖ Background Details of any Feasibility Studies that show the need for what you’re proposing, and projections of Occupancy Levels

❖ Analysis of your local Catchment Area – who are your Customers, and who are the other Providers that will be your ‘competition’.

Do check spelling and grammar - a good impression is important. If these aren’t strengths for you, ask someone who is good at them to read the text. Use ‘bullet points’ (like we have in the previous paragraph) in places - they’re sometimes better at breaking-up long passages of text listing your intentions. Make sure it’s neatly typed and printed, with a face-sheet or title page giving Contact Details. Put it into a proper report cover; you can get them quite cheaply from any good stationery shop.

WHAT SHOULD BE IN THERE?

No two will be exactly alike, depending on what you’re trying to put over, but we’d suggest the following:

Contents Page

It comes first, but leave actually doing it till last. Unless your Plan’s extremely short, it’s a good idea to list the Section Headings and the page numbers on which they start, and then the Appendices (not quoting page numbers for these), in the order they come. As a general rule, number Sections 1, 2, 3 etc., but letter Appendices A, B, C etc.

Introduction (or ‘Executive Summary’)

Just a brief summary (half a page at very most) of what your Organisation does, and what you’re intending to do in this Plan, so it’s clear to the reader from the start what they’re looking at. In particular, if you’re seeking funding for a Project, explain in just a couple of sentences here what it’s all about.

Background to your Organisation

Cover briefly things like:

❖ Who are you? When were you established, and why?

❖ What’s the nature of your current or proposed Childcare Business (e.g. who owns it, or runs it, or organises it? Is it a Voluntary Management Committee; Limited Company; Charitable Company Limited by Guarantee; part of a larger Organisation; Private Sector business owned by Mr X and Mrs Y . . . etc.) And how is it presently managed in operational terms?

❖ What have you been doing so far, where, and with what client/customer base?

❖ What have been your outstanding achievements (if any)?

❖ Do you work in close partnership with any other Organisations, and are you a member of any recognised associations or professional bodies?

The Project

Especially if you’re doing something new, or expanding your current operation, this is the place to explain what you want to do, and how you want to do it.

❖ Set out in a Summary things like:

o Who (briefly!) is the Childcare Provision aimed at serving?

o Number and type of Childcare Places you’ll be offering, for each of the age ranges [break these down in line with the EYFS Welfare Requirements age ranges].

o Hours of Opening (per day, and for how many weeks of the year, e.g. will you be ‘Term Time Only’, will you open 50 or 52 weeks a year [think about Christmas, Bank Holidays etc.]

o Where will it be located? Does the building meet EYFS/OfSTED Care Standards criteria?

➢ If buying premises, what is the cost and how will you finance it?

➢ If renting premises, who owns them? Will you have exclusive use or have to share? Will you have all your own meters, or pay a ‘services charge’ to the owners for electricity, water, waste disposal etc. Is there/will there be a written Tenancy Agreement, and how long for? [essential for your own protection – whoever the landlord is - even the organisation that ‘owns’ you, fall-outs can happen or alternative uses for the rooms may come along that mean they want you out!]

o What is your “unique selling point” that will make local people want to pick your service above others locally they might otherwise choose?

❖ What are your Objectives for the short-term (= next few months), medium-term (= next 1-2 years) and long-term (to the end of your Project, and beyond)?

❖ What will be the Benefits of your Project – to the Customers, to the Community . . . and to those who help provide the funding to make it happen?

❖ What are the Strengths, Weaknesses, Opportunities and Threats for your Business or Project? This is the place for the famous “SWOT Analysis” where you can show these issues in a simple four-box table with those headings. Don’t dwell on this unduly, but it may add to your credibility if you have just a few sentences that show you’ve looked at your Analysis and identified:-

a) What could go wrong . . . and . . . (b) What you’d do if it did go wrong.

Above all, if you’re using your Plan to apply for Grants, Loans etc., make sure you’ve addressed every single point of the criteria and requirements that the funding provider has specified. Never assume they know anything about you or what you’re doing; take nothing for granted – they may be using some kind of ‘scoring system’ and if you don’t use the words they’re looking for, you won’t get a tick in that box.

Future Management and Structure

A short summary of how the organisation will be managed and staffed in future, if your plans go ahead – not just the ‘operational’ part but the ‘overview’ by your Committee, Governing Body, Board etc. – and where the responsibilities lie. A structure diagram may help illustrate this.

Names of individuals don’t matter here - they can change - what you need is the titles of the posts, e.g. ‘Treasurer’, ‘Secretary’, ‘Manager’, ‘3 X Nursery Nurses [NVQ3]’ etc. Do you need all the full Staff from the start, or will they be recruited over time as numbers grow?

The Market – and the Competition

Under ‘The Project’, you mentioned briefly who your service was aimed at. Now you need to set out in more detail what you think the nature of your Customer Base will be, and where and how you will find it.

How do you know the need for your Project exists at all? Have you done a Feasibility Study or any Surveys? Only summarise the key conclusions here; put all the fine detail into an Appendix if appropriate.

Are you sure there is in fact going to be a market for your services? Have you thought about things like local population trends? Proposed school closures? Local housing construction and clearance projects? Major urban regeneration initiatives? You can obtain a lot of information about such matters from the local Sure Start (if there is one in your area) or from the Early Years Team, the Planning Department, and other parts of the City Council.

What about the Competition? This is the way the Childcare Sector works and ANY Childcare Provider in your proposed area of operations, from solo Childminders to national chains of Daycare Nurseries, in whatever Sector they operate, is an actual or potential competitor for the same children you want to reach – and for the fees they will pay!

So get used to the idea – and find out about them! Who are the Competition, what services do they offer? What do they charge? Why would people desert them and come to you instead? (Remember – whatever they say, people seldom truly buy anything on price alone).

Selling your Services

You’re starting, or running, a business providing Childcare Services. Whether you’re aiming to make a profit is a separate matter. But you still have to persuade people to use you in preference to someone else; in short you have a service and need to find prospective customers and get them to your door (which is that nice word ‘marketing’), and then you have to do the hard bit and persuade them to buy it – and that’s that ugly word ‘sales’!

So set out:

❖ how you propose to find your Customers, the Parents and Carers, in the first place

❖ how you’ll reach them to make them aware you exist, and get them to look at your offer

❖ how you’ll then persuade them, face-to-face, that yours is the Childcare Setting they want

❖ what contracts or agreements will be required, and your key ‘Terms of Trade’ (e.g. deposits, policy for fee arrears, holiday arrangements etc.)

❖ what you will charge

Financial Requirements – Budgets and Cash Flow and Forecasts

Before you can finalise this section, you need to have prepared your detailed Budgets and/or Cash Flow Forecasts which you will enclose as an Appendix. Only by doing that can you identify how much money you’ll need, and for what purposes. (We can provide separate guidance on fee-setting and costings, and on completion of detailed Cash Flow Forecasts).

Firstly, it is essential to understand that Budgets and Cash Flows are very different things:

❖ Budgets seek to give an overall picture of the levels of income & expenditure that are expected over the year. They don’t generally aim to reflect the actual “timing” of money that flows into and out of your organisation.

❖ Cash Flows aim to ensure that your organisation will have enough money in the bank to allow it to pay for all the goods and services it may need throughout the year, as and when payments fall due. (It’s no use knowing there is a Grant instalment due next month if you have nothing in the kitty to pay your wages bill this month – your Staff will walk out!) Cash Flow Forecasts also take into account the money available at the start of the year, and give a figure for the money that should be left at the end of the year.

If the whole Project is brand new, and involves a significant amount of up-front ‘Capital Expenditure’ (on buildings, equipment etc.) it’s sometimes best to have two separate forecasts: one for ‘Pre-Opening’ expenditure and another for once the business actually starts trading (which will be the ongoing Operating Expenses, often called ‘Revenue Expenditure’).

In the text of the main Business Plan, though, what you really need to highlight therefore is:

1. How much it will cost to set-up in the first place (if applicable) – often this is mostly likely to be ‘Capital’ spending such as on premises and major equipment, but may also include some Pre-Opening ‘Revenue’-type costs such as advertising for Staff.

2. How much it will cost to pay the Staff and run the Setting (‘operating expenses’) in each year covered by your Plan.

3. How much Income you realistically expect to generate from selling your Childcare Services, i.e. the total fees you’ll be earning each year.

4. Where the rest of the money will come from – Grants, Bank Loans, and any other sources. Bear in mind few Nurseries start trading with anything like full Occupancy. At best, Expenditure will probably be higher than Income for several months, maybe more. So as well as obtaining and equipping your premises, you’re likely to need some working capital to tide you over the build-up.

Number 4 is of course a key consideration if your Business Plan forms part of a Funding Bid to a potential Grant or Loan Provider, because it’s what you’re going to be asking them for! Save time by enclosing copies of other funders’ Offer Letters with your Appendices.

The other main advice we would give you on the financial side is:

“Be realistic, especially over costs and occupancy levels”

Always allow a little margin when working-out how much things will cost, wherever possible. Builders’ invoices seldom come in exactly in line with their estimates, and you’re bound to have forgotten some important piece of equipment you can’t manage without.

Occupancy expectations

Whether your Setting’s Registration is for 16 children or 60, it’s highly improbable you can keep the Occupancy Level at 100% full for 100% of the time. Even the very best-performing and most popular Childcare Settings can seldom consistently do better than 80-85%, because of holidays, time taken to fill vacancies, and the difficulty in selling places at certain less popular times of day. Building-up to that level often takes a year or more.

So it would be a good idea to base your figures on a gradual build-up of numbers, and show you can at least ‘break-even’ (i.e. cover all your Costs, even if you don’t make anything more) on - say - 70 or 75% Occupancy. Covering the Staffing Costs for younger children (0-2 and 2-3) is far more expensive than for older children, simply because of the impact of the EYFS Welfare Requirements (what used to be called the OfSTED Care Standards Ratios), and it’s unlikely you can recover more than a fraction of that difference through fees – it’s just how the Childcare Market works.

You may be planning to offer 3 & 4-year old children the statutory ‘Free Entitlement’ to Early Years Services. As well as the Nursery being paid a set amount of funding by the Local Authority for offering this ‘free at point of delivery’, this is very helpful towards Occupancy because it attracts custom from parents who may then be willing to buy “additional hours” of childcare to enable them to access work or training. Please bear in mind though that acceptance to deliver the Free Entitlement is not automatic, and the Early Years Team will need to carry-out a ‘validation’ process which may take anything from a few weeks to several months

Finally, remember, you don’t measure and monitor Occupancy by ‘numbers on roll’, but by how many Childcare Sessions or Hours you sold compared to how many you were offering.

Conclusion

Two or three concluding sentences to wrap it all up, reiterate a couple of your major strengths and express confidence in the outcome. And – apart from adding the Appendices and Forecasts we mentioned earlier, that’s it – your Childcare Business Plan is done!

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For further guidance and support, contact the Early Years Team

Telephone: 0115 8764544 or e-mail earlyyears@.uk

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[Revised October 2012]

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Children and Families – Early Years Team

DEVELOPING AND WRITING A CHILDCARE BUSINESS PLAN

Children and Families – Early Years Team

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