Updated: 23rd January 2020
A significant rise in the number of childcare nurseries entering insolvency is causing concern for the early years sector. According to figures from accountancy group, Moore Stephens, there were 29 nursery insolvencies in England and Wales during the year ending March 2016.
With only 16 closures in the previous year, this represents an 80% rise. So what has caused the number of nursery insolvencies to almost double in a year, and how can we help business owners to survive this downturn?
The introduction of the National Living Wage, and a rise in the National Minimum Wage, is reported to be a major factor in nursery insolvencies. In conjunction with minimum staff/child ratios, it presents sector-specific problems for nursery business owners. The average staff/child ratio is 1:6 for children aged 3-4, but this is halved to 1:3 for two year olds.
Caring for babies and younger children is considerably more expensive from an operational point-of-view - a factor which has resulted in many business owners increasing their fees simply to survive. This in turn has caused the numbers to drop, as parents struggle to afford the increasing cost of childcare.
The workplace pension initiative being rolled out by the government will involve even the smallest UK businesses by October 2018. Setting up and administering a workplace pension scheme has cost implications in terms of time and money, even before the employer has made their contribution.
Business rates are based on the rateable value of non-domestic properties. The recent 2017 rate revaluation is likely to cause further financial distress to nurseries already under a heavy financial burden.
The National Day Nurseries Association (NDNA) expressed their disappointment after Philip Hammond offered a £1,000 discount on business rates for eligible pubs in the spring 2017 budget. There was no such support for the nursery businesses that generally require large premises in which to operate, as well as an outdoor space for children to play.
For this reason many nurseries do not fall under ‘small business rate relief’ parameters, and
NDNA is campaigning for full rates relief. The campaign is based on the support that nurseries provide to the economy in allowing people to return to work, and the responsibility that is taken on in educating our young.
Additionally, the Chancellor has made available £300 million of discretionary relief to local government, but there is no guarantee that nursery businesses will benefit from this money – indeed, it may already be too late for some.
An increase in operational costs across the board is endangering financial security for many nurseries:
Obtaining professional insolvency advice is crucial when your company is facing insolvency. It may be possible to rescue the business via a number of routes – in fact this is the main aim when licensed insolvency practitioners are called in.
Apart from the valuable moral support provided by an insolvency practitioner, on a practical level you gain access to a range of contacts with regard to obtaining additional funding, if this forms part of the recovery plan.
For businesses that have already entered insolvency, a formal solution may be needed. In these cases, an IP’s influence during negotiations with creditors is invaluable, instilling trust and confidence in your ability to repay.
Our experts at Real Business Rescue are specialists in the early years sector, and can offer a range of advisory and practical services to help you. We will arrange a free same-day appointment in complete confidence, establish your company’s financial position, and quickly identify your best options.
Call our team of licensed insolvency practitioners to arrange your free initial consultation with a network of 78 UK offices
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