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7 Top Action Tips – Finance for Daycare Nurseries

Raising Finance to Purchase a Day Care Nursery

Finance for Daycare Nurseries

Parents are busier than ever, and childcare has become a necessity for many working parents, this has seen a growth in the need for more daycare nurseries in the UK.

As you would imagine daycare nurseries are very highly regulated as they are responsible for the well-being of the children that attend. All nurseries in England are regulated by Ofsted (The Office for Standards in Education). They are expected to adhere to all the rules and regulations set out by Ofsted and they will also undertake inspections to make sure that a satisfactory level of care is being given and that appropriate records of the children’s developments are being kept.

Staffing will be one of the biggest costs to the business, the increases in national living wage have had an impact on the sector. Staff will also be one of the biggest assets and making sure they stay with the company will be important for future business growth.

Having a clear plan for training, promotion, retention and recruitment will help the nursery maintain the correct number of staff needed to operate a successful nursery.

The government scheme that offers 30 hours free childcare has impacted on the sector and as many nurseries believe that the funds they receive from the government for these hours are not enough to cover their costs, this means that having an income split biased to private income is important to the overall business performance.

If you are looking to set up a new nursery or grow an existing site there are a few key points that will help you.

  1. Know the location – It is vital to understand the local area. Locations with a high number of young families should be a target, as the majority of parents choose a nursery within a small radius of their homes, most parents will now commute to work so being close to a train station will certainly be a benefit to the business.
  2. Competition – Ideally you would like to open a new nursery in an area with an under-supply of places and where there is a healthy waiting list.
  3. Branding – Be different and stand out from the competitors, try and develop a logo and set out the core values for the business so parents can understand why you are different to the other nurseries in the local area.
  4. Business Plan – A Business plan is a road map for your business, it will help plan strategy for marketing, recruitment and set priorities. The plan is important for existing and start-up business and if the business requires finance, lenders will want to see a business plan which sets out the businesses goals, the experience of the management team and a cash-flow forecast setting out the profitability of the business over the next 2-3 years.
  5. Relationships – Build a strong relationship with the local authority, most areas will have a service/need that they are lacking and if you can offer these services, they will hopefully refer parents to your business. Having good contacts with the schools closest to the nursery will help with attracting new children and ultimately help with the business’s occupancy levels.
  6. Finance/funding – Lenders do have an appetite for this sector and will generally be more comfortable lending to a proven operator who has demonstrated an ability to manage and grow a daycare business in a very competitive market. Lenders will consider start-ups but the applicant would need to have considerable experience and relevant professional qualifications within the sector. Please read our detailed section below on raising finance to purchase a daycare nursery.
  7. Franchising – Another option for the sector is franchising which can provide a higher degree of support for new entrants to the market. The franchise company would need to be a proven operator in the UK.

Raising Finance for Daycare Nurseries

How do lenders view the premises within the Daycare Nursery sector?

If the nursery is based in a converted residential property then generally the loan to value (LTV) will be around the 65% mark, however, is based within a purpose-built/limited alternative use property then 55% LTV would be more realistic.

Loan to values (LTV) – these can be based on the bricks and mortar valuation of the freehold or the business trading valuation, lenders will normally decide which matrix that they would want to use, the valuation of the freehold/business will need to be undertaken by an independent valuer.

Loans are normally termed over 10-15 years. Some banks will allow you to make lump sum repayments with no charge which can help reduce the term and allow you to repay the loan earlier if that fits within your business model.

The most common ownership structure for a nursery will be as a limited company, this is partly due to tax. A limited company owner must pay corporation and dividend tax, whereas a sole trader will have to pay tax on all business profits. Your accountant will advise you on the most suitable ownership vehicle for your business.

Structure – if the nursery owns the trading/operating business and the freehold then they may decide to own these two entities in separate limited companies. This is normally referred to as Opco/Propco by lenders and they will tie in both businesses by way of security for any lending that they undertake to the nursey.

Security – banks will take security for lending in this sector, normally a 1st legal charge over the nursery freehold, limited company debenture (legal charge over the companies’ assets) and a personal guarantee. In the case of Opco/Propco lending, the banks will normally cross guarantee the operating and property company to tie in both the property asset and the trading income.

So how can we at Samera help you achieve your goal of owning a Day Care Nursery? Firstly we have 30 years collective experience within the banking sector and for the last 10 years specialising within the healthcare sector.

Samera Finance can help with an initial assessment, deal structure, business plans and help negotiate a competitive interest rate for your acquisition financing. We have contacts in all the major banks, contacts who have experience of this type of lending to ensure that you get the correct deal especially in respect of the fees and rates of interest. Deal with the wrong lender and they may not give you the favourable rates that healthcare professionals benefit from.

We will obtain for you several offers of finance enabling you to select the deal that suits your own circumstances we will guide you through the lending process and be the point of contact for the lender when they are unable to talk to you while you are working. This enables you to carry on working and if we need to talk through any points with you, we are available in the early evening to do so.

 

2019-09-02T18:21:58+01:00

About the Author:

Arun Mehra
Arun is the founder of the Samera Group, starting the business with just one client sitting at his father’s dining table. Fifteen years on, Team Samera now service hundreds of Dental clients across the globe, by helping clients start, scale, sell and succeed in their dental businesses.