Nursery Management: Sustainability - Grace under pressure

Early years managers must steer a careful course through turbulent times in the coming months if they are to keep their settings afloat.

Economic forecasts are grim, particularly for a sector which had its own financial squalls to weather before the start of the downturn.

Providers are hanging on rather than bailing out according to Morvyn Hayes, partner in the business-sales specialist AH Lansley.

'We are still selling but we are not over busy,' he says. 'We are able to arrange finance for prospective purchasers but I do not think they all realise that, so they are holding back because they feel they cannot finance a purchase. Vendors feel the market is a bit depressed and prices are not good so they are hanging on for as long as they can.'

Toughing it out

So what is the impact of the recession so far?

'I know of a local nursery where staff have been put on a four-day week,' says Glen Perrott, proprietor of the Cambridgeshire HRH Nurseries chain. 'I have not had that difficulty but I have had parents come in, very distressed, to say they have been made redundant. I have given them advice on their employment rights.'

At the Old Station Nursery chain, proprietor Sarah Steel reports that several parents have been made redundant and reduced from full daycare to funded sessions.

'However, we have had mothers going back to work,' she says. 'As long as there are jobs around, it looks like it will balance out.

'In November and December our revenue was down, but in January we had more show-rounds in two weeks than in November and December put together.

'We know of several nurseries that are going bankrupt. We have two nurseries in areas where others have closed, which is sad for them but good for us as we can mop up. As to the impact on the sector, the jury is still out as far as we are concerned.'

Maintaining staff investment

The NDNA is determined to give practical support to its members when it comes to sustainability. Chief executive Purnima Tanuku says, 'NDNA's costing tool, which helps settings to pin down all their costs and check fees are at the right level, is available to download via our site. We are also producing a member factsheet sharing hints and tips about coping during a downturn.'

Mrs Perrott says she works to help parents in difficulties. 'In the first few weeks after Christmas I had three parents lose their jobs. We had families where both parents lost their jobs.

'I am not going to add to their problems. We ask them to continue with their place that week and then we offer to credit their fees so they can use them for the days when they have interviews or an appointment at the jobcentre.'

Sarah Steel says she is trying to reduce costs to make her chain as efficient as possible. 'We are looking at our utility suppliers to see if we can get better deals,' she says.

'We are also making sure the staffing is as efficient as possible. In some cases, where we have had a drop in numbers, we have asked staff to reduce their hours rather than make anyone redundant.'

Tina Jefferies, director and founder of training provider the Red Space Company, believes staff are the most important asset.

'There are various ways to invest in your staff efficiently,' she says. 'One is to look for training grants that are offered outside the sector to local businesses, generally via Train to Gain and Business Link. Another option is to use different approaches to the traditional training and development programmes by running in-house training and bringing in a coach or cascading training.'

When there is so little scope to increase pay, Ms Tanuku says settings are finding innovative ways to reward teams - through flexible working, linking with companies to offer staff discounts, and offering bonuses and recognition of achievements.

Can the Government get it right?

Providers recognise that early years will not get special government aid, but what they want is to see all the money it earmarks for the sector actually reaching it.

'It would be much easier for providers if the childcare element of the tax credits came direct to the provider rather than the parents,' says Mrs Perrott. 'There are still people who look around the nursery, say they will be claiming tax credits, book a place, have a couple of settling-in sessions and then we never see them again.'

The free entitlement continues to be an issue of great concern.

'It is absolutely vital that the Government ensures that the free early years entitlement is funded at a fair and sustainable level,' says Ms Tanuku.

'With the extension to 15 hours and commitment to a free offer for two year-olds, it is essential that issues in the system are resolved.

'The private, voluntary and independent sectors are key to the delivery of a flexible, universal offer, and if childcare is to be both sustainable and affordable then nurseries must be funded properly.'

Another issue is business rates. 'These can represent a significant proportion of a setting's costs and in recent years some nurseries have seen dramatic increases in business rates,' says Ms Tanuku.

'What settings pay is variable, but it is unfair that some nurseries should be penalised for offering a spacious environment.

'Rates are often calculated on the basis of space, rather than looking at other factors such as numbers of places or occupancy.'

THE WAY AHEAD

- Steve Alexander, Chief executive Pre-School Learning Alliance

'While the Government believes that sustainability funding is adequate, the Alliance's experience and that of many providers is that funding can be difficult to access and also, we detect, may not be being equally distributed by local authorities.

Central government has a role to stabilise childcare - particularly given its key role in helping to meet government priority areas for action such as child poverty and social mobility, and bearing in mind the steps taken to "bail out" the banking and finance industries.

The Alliance was heartened to read that Peter Mandelson had recently assured Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations, that third-sector organisations would be eligible to apply for the £20 billion financial support package for small businesses launched by the Government.However, this could be too little too late for childcare providers striving to deliver and implement the Government's ambitious strategy.'

- Alan Bentley, Chairman The Childcare Corporation

'I had believed that we could ride out the worst of the recession if there was a successful take-up of the Government's rescue plans and a resulting levelling out of unemployment. Regrettably this has not happened.

Today we have more than two million unemployed, and many economists believe that three million will be the sorry total by third quarter 2009. If they are right, the knock-on effect will probably be quite dramatic for our sector.

What can be done by operators? The cornerstone of survival will be 'operational efficiency'. Staff must be trimmed to meet ratio as occupancy declines, with both managers and other senior staff counting in ratios whenever possible.

This will be hard, but it is essential to consider the greater good - for both children at the nursery, and those staff needed to look after them.

Bad debt must be handled immediately. Margins on nursery income are always tight, but right now, bad debt could be the biggest risk to your nursery's solvency.

Maybe the Government could ensure that the full amount of money it often crows about putting into childcare is actually getting to nursery operators.'

- Linda Oury, Director of operations Bright Horizons Family Solutions

'Successful nursery businesses always need to address the challenges of enrolment, staffing, complying with changing statutory frameworks and keeping control of costs.

In the current climate, these challenges may seem even more problematic than usual.

However, it is important to take the long view that the market is strong in the long term. People will always need childcare, and currently as all employers need to increase productivity, working parents need access to reliable childcare to meet work responsibilities.

In the immediate future, nursery businesses need to continue to develop staff, looking to offer opportunities to those new to childcare, perhaps bringing skills learned from retail or commercial sectors.

They should also examine business practices to ensure financial prudence, passing savings where possible to parents.

Bright Horizons, benefiting from the strength and stability of our global organisation, is investing in staff, and infrastructure.

Where appropriate, it is looking to acquire like-minded companies to complement our organic growth, so that we are ready for the future and can guarantee stability.'

- Purnima Tanuku, Chief executive of National Day Nurseries Association

'Although these are difficult times, it is vital that you remain sustainable. Nurseries should review their costs and check that fees are reasonable. We suggest downloading our free costing tool, which helps you see the impact of rises and falls in occupancy.

Ask your local authority about capital grant funding and staff training help.

Keep tight control of costs, negotiating where necessary, and keep a close eye on parental fees - ensure that you have a stringent payment policy. If you face difficulties, speak to your local authority and see how it can help, for example with business support advice or sustainability.'

Further information: www.ndna.org.uk

CASE STUDY

The adage 'take care of the pennies and the pounds look after themselves' could have been coined for Jo Mullins - except she keeps a sharp eye on the pounds too.

Since she opened her Kinderland Day Nursery in South Croydon during the last recession it has trebled in size and has an occupancy rate of around 95 per cent.

'You have to keep your spending and your costs under review,' she says. 'I audit my expenditure. Our nappy disposal bill rose to £300 a month. We switched to another contractor who charges £900 a year. The nappies go to an incinerator heating Hillingdon Hospital, so it is environmentally friendly and saves us money.

'We signed up to a recycling scheme, which has saved us thousands of pounds, and the children learn to recycle cardboard, plastics and cans.

'We get our fruit and vegetables direct from Covent Garden, where it is cheaper and fresher than the supermarket, so we have less food waste.

'We shop around. There can be a difference of £1-£2 on a packet of gloves. We monitor the utility bills. If you pay by standing order you get estimated bills. We realised we were being overcharged and had about £1,200 in credit.

'We reckon these savings can equate to 10 per cent of our profit. I keep track on the money coming in from the local authority too and make sure we apply for grants that are available.

'I have clear management accounts. I had the same accountant for 11 years but my tax bill seemed incredibly high. My new accountant is costing 55 per cent of our former accountant and our tax bill is considerably lower.

'We have good credit control. If a parent who has been a good payer hits problems, we are flexible as long as they give us a written statement explaining how they are going to pay and stick to it. The place is terminated if they do not keep to it. We accept credit cards.

'Few jobs are nine to five. A lot of our parents work shift patterns. We have a family where both parents are on six-week shifts. Rather than keep changing sessions, we worked out a timetable which means they are covered. It took an hour to do but was worth it.

'Flexibility comes at a price. We are a 75-place nursery. If we had 75 children then the paperwork and keeping in touch with the parents would be simple, but we have 176 children to cover.

'We work to keep occupancy rates high. We watch our places. The staff work hourly contracts and do 42 hours a week so we may ask them to work two longer days and a shorter one rather than working shifts.

'On any day there are usually three to six children off through sickness or holidays. We ask parents to telephone before 9.30am if they are not coming. Other parents know they can call and say, "I have a meeting this afternoon, can you have my child for an extra hour?"

'Our average salary is £16,000 but we cannot compete against the maintained sector. We do a lot of training as I think it is very important to have a stable team.'