Business - How you can make ends meet

With many settings reliant on funded entitlements, if the rates are not in line with delivery costs they can have a significant impact on sustainability. With rising business costs, the funding regime has created an extremely challenging environment. Working within the national operational guidance and any local authority interpretation of this, settings will need to dedicate time and resources to ensure they are compliant with the requirements while remaining financially viable.

It is advisable to invest time in experimenting with budgets based on different scenarios. For instance, whether changes in opening hours, days, number or ages of children, fee levels and charges for additional services or consumables and other identified opportunities would result in an improved and more viable budget. It is important to understand the impact on costs resulting from such changes, particularly premises and wages.

Changing patterns of demands and customer expectations will need to be taken into account and will inform changes to the services offered.

In addition to providing parents with information on funding for two-, three- and four-year-olds, time should also be spent on informing them about their potential eligibility for tax-free childcare, Universal Credit and tax credits, which will further support the providers’ sustainability. Further details can be found at www.gov.uk/help-with-childcare-costs and www.childcareworks.co.uk/resources. In addition, providers should also be aware of additional funding to support particular circumstances. For instance, the Early Years Pupil Premium is available to support disadvantaged three- and four-year-olds.

The Disability Access Fund is available for three- or four-year-olds who receive Disability Living Allowance to enable them to access funded provision entitlements. The Special Educational Needs (SEN) Inclusion Fund is available for providers to meet the needs of individual children with SEN. Further guidance can be sought on this funding from the local authority.

BREAK-EVEN ANALYSIS

Many providers set their fees based on those of other local providers and perceptions about what parents might be willing to pay. While these are important factors, it is best to start with the costs of delivery of the provision. In order to set fees in such a way that all operating costs are delivered, a break-even analysis should be undertaken to establish the level of income needed to cover all expenditure.

Identifying all of the provision’s costs is vital, as unintentional underestimation of costs will lead to fees which will not enable the budget to be met.

Once the break-even costs are established, fees for places and additional services can be set at an appropriate rate. While it may be thought that offering services at a low rate will drive demand, where high-quality provision is provided, a higher fee to reflect the improved services may also make good business sense.

Having a sense of what other local early years settings charge, in addition to what they provide for that fee, will also assist with marketing activities.

Reviewing the pricing strategy

An out-of-school club regularly has between 22 and 26 children attending between 3.30pm and 6pm each day. Parents pay a fee of £14.50 per session. The costs per day for up to 24 children are just covered by the fees. However, when there are more than 24 children, an extra staff member is required to meet the staff:child ratio. This costs an extra £22 per day. This means that to cover costs the club needs at least 26 children.

Prices should be reviewed regularly, with every eventuality covered, taking into account developments, such as static funded entitlement rates and increases in inflation and wage costs, as well as the fees of competitors in the area. The schedule of fees should be distributed to all staff and parents.

Key Performance Indicators (KPIs)

KPIs are measures that can be used to show how effectively a company is achieving key business objectives. They offer a gauge of a business’s health. For example, benchmarks to work towards might be a higher target of occupancy or lower staff turnover.

In terms of financial management information, the examples of KPIs in the table below could be considered by management teams.

Operating a Viable Early Years Provision, from the Early Years Alliance, is £13.65 (members), £19.50 (non-members). Readers can get 20 per cent off by using discount code Viable NW.