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Nursery and Childcare Business Plan

A nursery is a business where the two largest variables are set by regulation and by government funding rates rather than by you. Staff ratios fix your cost base and funded hours cap much of your income, which makes occupancy the number everything else depends on.

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What a lender or landlord examines

Nurseries are capital-intensive, heavily regulated and slow to fill. Lenders who know the sector go straight to the same four things.

  • The occupancy ramp, month by month. A new setting does not fill quickly. Parents choose a nursery months ahead and rarely move a settled child. Reaching 70% occupancy commonly takes twelve to eighteen months, and the plan has to be funded through that period rather than assuming it.
  • Ratios as a fixed cost floor. Statutory staff-to-child ratios mean your wage bill steps up with each additional child in the youngest rooms, and you cannot staff below the ratio however empty the room is. That makes under-occupied baby rooms structurally loss-making, which is why the age mix matters as much as the headcount.
  • The proportion of income that is funded hours. Government funded entitlement is paid at a rate set by your local authority, and it is often below the cost of delivering the hour. A setting whose income is mostly funded hours has very limited pricing power, and the plan needs to show how the gap is covered.
  • Whether the premises can be registered. Space per child, outdoor access, toilets, kitchen and fire safety are all prescribed. A building that cannot be registered at the capacity your forecast assumes makes the entire plan void, so this is settled before the lease, not after.

Typical startup costs

Premises conversion dominates, and the requirements are prescriptive enough that a building not designed for the purpose can absorb a large budget before a single child is enrolled.

Cost Typical range What drives it
Premises conversion and fit-out £60,000 – £350,000 Room layouts, child-height sanitary facilities, kitchen, fire safety, secure entry and an accessible outdoor area. Change of use planning is frequently required.
Outdoor play area £10,000 – £60,000 Safety surfacing, fencing, shade and equipment. Outdoor access is a registration requirement, not a nice extra.
Furniture, equipment and resources £15,000 – £60,000 Room furniture, sleep provision, resources for each age band, and the consumables that go with them.
Registration and professional fees £3,000 – £15,000 Ofsted registration, planning, architect, fire risk assessment and legal fees on the lease.
Insurance £1,500 – £6,000 per year Public liability at the level the sector requires, employers liability, and buildings or contents cover.
Pre-opening staff costs £15,000 – £50,000 The manager and senior staff must be recruited, inducted and in post before registration and before the first child arrives.
Management software and systems £1,000 – £4,000 per year Registers, learning journals, parent communication, invoicing and funding claims.
Working capital £40,000 – £150,000 The largest requirement in the plan. Full ratio staffing has to be paid from day one while occupancy builds over a year or more.

Indicative UK ranges for a 40 to 60 place day nursery. A childminding or preschool operation in existing community premises sits far below this.

The numbers that decide whether it works

These are the figures a lender turns to first, and the ones SquarePlan calculates for you as you enter your sales and costs.

Occupancy rate

80% – 90%

Places filled against places registered, measured on funded sessions rather than headcount. Most settings need to be above roughly 75% before they make anything, which is why the ramp period is the critical part of the forecast.
Staff cost to turnover

60% – 70%

The dominant cost, and the one you have least control over because ratios are statutory. Above 70% the setting is either under-occupied or carrying too rich a staffing structure for its size.
Fee per full day place

£45 – £95

Varies enormously by region. The relevant test is not what competitors charge but whether your fee, blended with the funded rate across your expected age mix, covers the cost of the ratio staffing that place requires.
Funded hours as a share of income

30% – 60%

Funded entitlement is paid at a rate you cannot negotiate and which frequently sits below delivery cost. The higher this share, the less pricing power the setting has and the more exposed it is to a rate settlement that does not keep pace with wages.

Licensing and regulation

Childcare is one of the most closely regulated sectors a small business can enter. Registration is a condition of trading, and the requirements shape the building, the staffing and the forecast.

Ofsted registration
In England, a setting caring for children under eight for more than two hours a day must be registered on the Early Years Register before it can operate. Registration covers the premises, the suitability of the manager and staff, safeguarding arrangements and policies. Allow several months, and note that the manager must be in post and paid throughout. Wales, Scotland and Northern Ireland have equivalent regulators with their own requirements.
Statutory staff-to-child ratios
The Early Years Foundation Stage sets minimum ratios by age band, with the tightest applying to the under-twos and progressively wider ratios as children get older. Because these are minimums you cannot staff below, they set a hard floor under your wage bill and are the reason baby rooms are the hardest part of a nursery to make pay.
Early Years Foundation Stage framework
The EYFS governs the curriculum, assessment, safeguarding and welfare requirements. It carries real staffing implications, including qualification levels, paediatric first aid cover and a designated safeguarding lead.
Funded entitlement
Government-funded hours for eligible children are claimed through the local authority at a rate the authority sets. Rules on what may and may not be charged alongside funded hours are specific, so the plan should model funded and fee-paying income separately.
Safeguarding and DBS
Enhanced DBS checks for everyone working with children, safer recruitment procedures, designated safeguarding leads and documented policies. All of it is inspected, and all of it carries cost and management time.

Occupancy is the whole forecast

In most businesses you can trim costs when revenue disappoints. A nursery cannot. Statutory ratios mean that a room open to children must be staffed to ratio whether it holds its full complement or half of it, so the cost base barely moves while the income does. That is what makes occupancy the dominant variable and what makes the first eighteen months the dangerous period.

Model it month by month, and be pessimistic. Enquiries convert slowly because parents visit several settings and then wait for a start date that suits their leave. Word of mouth, which is how nurseries genuinely fill, needs a cohort of happy families to exist first. A forecast that reaches 85% occupancy in month six describes a nursery nobody has ever run.

The realistic shape is a slow first two terms, acceleration once the first families start recommending you, and a September step when children move up and new starters arrive together. Build that shape in, and make sure the funding lasts through the shallow part of it.

The age mix decides profitability

Two nurseries with identical occupancy can have very different results, because the ratio for the under-twos is far tighter than for three and four year olds. A baby place consumes much more staff time than a preschool place, and fees rarely rise in proportion.

That produces a familiar pattern: baby rooms operate close to break-even or below and act as the pipeline, while preschool rooms carry the profit — and preschool is also where funded hours concentrate, at rates that may not cover cost. The plan needs to model each room separately with its own ratio, its own fee and its own funded proportion. A blended average across the setting conceals precisely the structural problem you need to find.

Funded hours are income you cannot price

Government funded entitlement is paid at a rate your local authority sets. You cannot negotiate it, it may not keep pace with wage increases, and the rules on what you can charge alongside it are specific.

For planning purposes, treat funded and private income as two separate revenue lines with different characteristics. Private hours can be repriced annually. Funded hours cannot, and if the settlement rises by less than your wage bill does, that portion of your income has gone backwards in real terms without any decision on your part. A plan that shows the split explicitly, and shows what happens if the funded rate is held flat while wages rise, is a considerably more credible document than one that blends everything into a single average fee.

Where SquarePlan fits

You enter your registered places by age band, your expected occupancy ramp, your fee structure, the funded proportion and the staffing each room requires. SquarePlan builds the monthly cash flow, break-even point and profit and loss, with payroll costs including employer National Insurance and pension calculated underneath. Push the occupancy ramp out by six months and you can see immediately how much working capital that costs — which is the question to answer before signing a lease.

How this gets funded

Nurseries need more capital than almost any other small business on this list, and they need it to last through a long ramp. Funding usually combines a secured facility with a working capital line.

Commercial mortgage or secured loan
Where the freehold is being bought, lenders will consider a commercial mortgage against the property. Specialist healthcare and childcare lenders understand the sector and take a more informed view than a general business banking team.
Bank term loan against a trading record
Realistic for an operator opening a second or third setting with accounts to show. First-time operators on leasehold premises find this considerably harder.
Start Up Loan
£500 to £25,000 per person at 6% fixed over one to five years. Useful for a childminding or small preschool operation, but well short of what a full day nursery conversion requires.
Asset finance and leasing
Equipment, outdoor play and IT can be leased rather than bought outright, preserving cash for the wage bill during the occupancy ramp, which is where a nursery genuinely needs it.

Frequently asked questions

How much does it cost to open a nursery in the UK?
Typically £150,000 to £500,000 for a 40 to 60 place day nursery, with premises conversion the largest element and working capital close behind. The requirement is high because full ratio staffing has to be paid from the day you open while occupancy takes a year or more to build.
How long does it take a new nursery to fill?
Twelve to eighteen months to reach a sustainable occupancy level is normal. Parents plan childcare months in advance and very rarely move a child who has settled, so a new setting fills through new enquiries rather than by taking existing families from competitors.
Do I need Ofsted registration to run a nursery?
In England, yes — a setting caring for children under eight for more than two hours a day must be registered on the Early Years Register before operating. Registration covers premises, management suitability and safeguarding, and takes several months during which the manager must already be employed. Wales, Scotland and Northern Ireland have equivalent regulators.
What occupancy does a nursery need to break even?
Most settings need to be above roughly 75% before they make anything, though it depends on rent and the age mix. Because statutory ratios mean staffing cannot flex down with occupancy, the relationship between occupancy and profit is steep — a few percentage points either way makes a substantial difference.
Are government funded hours profitable for nurseries?
Frequently not on their own. The rate is set by the local authority and often sits below the cost of delivering the hour once ratio staffing is counted. Most settings cover the shortfall through fee-paying hours, additional services and their age mix, which is why funded and private income should be forecast as separate lines.

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