Building a more profitable nursery, not just a bigger one

‍By Robert Burns, Transaction Advisory Services Director and Head of Day Nurseries

‍

Building a more profitable nursery, not just a bigger one

There is a habit in the early years sector, and most sectors really, of equating growth with size. More children, more rooms, more settings, more turnover. Those are useful measures, but they are not the same as a stronger business. The nurseries I work with that are genuinely thriving are not always the largest. They are the ones that have built a culture around what the business actually keeps, not just what passes through it.

The bottom line is where the work shows up. It is what funds reinvestment, what pays the people who built the business, what creates options when the next opportunity arrives, and ultimately what determines what an owner walks away with when they decide to step back. Turnover is a vanity metric on its own. Profit, properly managed and properly retained, is the measure that matters.

‍

Why is the wage line the lever that moves everything else?

The start in point for improving profit is usually around understanding wages as a percentage of revenue, because in a nursery business the wage line drives everything else. Small movements in it move the bottom line in ways that few other levers can match. That does not mean a setting should be cutting staff or running tight on ratios. The strongest operators run safe, well-staffed environments and still manage their wage percentage carefully, because they pay attention to how the team is structured, how shifts are designed, how the rota matches the rhythm of the day, and how senior time is being used. The question is not whether to spend on people. It is whether the spending is shaped to match how the business actually runs.

‍

When was the last time you reviewed your fee architecture?

Pricing is the second area, and the one owners are often most reluctant to revisit. Fee structures in this sector tend to evolve gradually rather than by design. A rate set three years ago against one cost base is still being applied against a very different one today, and the gap between the cost of delivery and the price being charged for it has, in many settings, quietly widened. A proper pricing review looks at session structure, age group pricing, the funded and private hour mix, consumables, meals and additional services together. The aim is not a blunt increase. It is a fee architecture that reflects what the business actually delivers and what it costs to deliver it.

‍

Where does cost control quietly compound?

Cost controls is alongside this, and the operators who do it well treat it as ongoing rather than reactive. The temptation when margins tighten is to look for one large saving. In practice, the bigger gains usually come from steady attention across several lines. Suppliers being reviewed properly rather than rolled over. Utility contracts being renegotiated at the right point in the cycle. Consumables being procured at a level that matches scale. Insurance, software, training and professional fees being benchmarked rather than assumed. None of these are dramatic individually. Together they shift the cost base in a way that compounds.

Capital allowances are routinely under claimed in the nursery sector, particularly around refurbishments, fit outs and equipment. Owners who have invested significantly in their settings, whether in outdoor areas, kitchen facilities, sensory rooms or general upgrades, are often sitting on more allowable expenditure than they have claimed for. A proper review can release meaningful tax savings, and in some cases can be applied retrospectively. It is the kind of work that does not feel urgent, which is exactly why it tends to get left.

‍

What about how the profit actually leaves the business?

Remuneration structure is another area where owners give up more than they need to. The way profit is extracted from the business, the balance between salary, dividends and pension contributions, the use of family members where appropriate, the timing of distributions, and the interaction with personal tax planning all affect what the owner actually retains. This is not about clever schemes. It is about taking the time to structure something that has often been left to evolve by default, and bringing it in line with the way the business and the owner’s circumstances look now.

Property ownership is worth considering as part of the same conversation, particularly for owners who hold the trading business and the property in the same structure. Whether that arrangement still works, whether a separation would create flexibility or efficiency, and what the longer-term plan looks like for both the business and the property are all questions worth asking before a growth move or an exit, not after.

Profile extraction and tax planning sound like back-office concerns, but they are not. They are part of the same picture as fees, wages and occupancy. A setting that improves its margin and structures its tax position properly can deliver materially more to the owner than one that grows turnover significantly without changing either. Growth in this sector rewards the operators who understand that the bottom line is built, not just earned.

The settings that do this well share a habit. They look at the financial structure of the business as actively as they look at the operational one. Fees, costs, wages, allowances, structure and extraction are all reviewed regularly, not just at year end. The numbers are not left to the accountant to interpret after the fact. They are part of how the business is run.

Bigger is good. More profitable is better. And in a sector where the operating environment keeps shifting, the businesses that protect their bottom line are the ones with the most freedom to choose what comes next.

‍

Turnover is a vanity metric on its own. Profit, properly managed and properly retained, is the measure that matters

Robert Burns, Transaction Advisory Services Director, Ballards

‍

This article has been prepared forinformation purposes only. Formal professional advice is strongly recommendedbefore making decisions on the topics discussed in this release. Noresponsibility for any loss to any person acting, or not acting, as a result ofthis release can be accepted by us, or any person affiliated with us.

‍

‍