More than half of the private, voluntary and independent nurseries questioned also said they had considered selling up in the past year (55 per cent).
The survey by the Federation of Small Businesses (FSB), which represents around 1,150 day nurseries, received 280 responses.
Among these, 87 per cent of nursery owners said that the funding for the early years entitlement did not cover their hourly rate and 61 per cent said that extending the entitlement to 15 hours a week would have a negative impact on their business.
Dawn Nasser closed Indigo House Montessori pre-school in Croydon, Surrey, on 3 April, after running the business for seven years, because she figured that Croydon council's new terms and conditions for flexible provision would mean a loss of £10,000 in the next year.
The pre-school had 26 places and was open 38 weeks a year, 9am-3.30pm, with a holiday club.
Ms Nasser asked parents to sign up to a minimum of 20 hours a week because the LA hourly rate, (at £3.45 an hour from 1 April) does not cover the true cost of a place, which is £5.50-£6 an hour per child.
From this month the council stipulates that parents must be able to choose to take only 12.5 hours flexibly if they want to, with no extra charges.
Ms Nasser said, 'I invested £30,000 in the business I've had to close down and the pre-school had been there for 14 years. What's happening is that sessional providers are being driven out. I was flexible in that I met the needs of the community I was in and I was able to be sustainable.'
Ms Nasser said her staff were qualified Montesssori teachers with at least NVQ level 4 and she was not prepared to cut salaries.
She also runs a pre-school in Lewisham, London, but said that so far the local authority has not been as prescriptive.
Colin Willman, FSB education chair, said, 'The FSB urges the Government to suspend the 2006 Code of Practice on the provision of free nursery education places for three- and four-year-olds to enable nurseries to charge at a level that enables them to cover costs until a workable funding formula can be applied across all local authorities.'
FSB survey findings
Responses were received from nurseries in 100 areas in England, Wales and Scotland:
- 41 per cent considered closing the nursery last year
- 55 per cent considered selling the nursery last year
- 87 per cent said local authority funding does not cover the cost of the free early years entitlement
- 59 per cent said that extending funding to two-year-olds would have a negative effect on their business
- 61 per cent said they did not know if they would still be running a nursery in 2015.
