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Close My Nursery and Childcare Business

Rescue, Recovery, and Closure Options for Nurseries and Childcare Businesses

While providing a vital service to parents up and down the country, nurseries and other early years establishments, are continuing to experience acute financial pressures which have the potential to push some to breaking point.

Although the increase in free childcare hours for children aged three and four has provided a welcome boost for working parents, this has not proved as financial advantageous to those responsible for those providing this childcare.

As those nurseries who offer the boost to free hours struggle under the weight of inadequate government funding to provide this, those who choose not to offer the free hours are finding themselves unable to entice parents in the first place.

In addition to this, early years providers are also faced with the same challenges that are affecting all service industries who rely on traditionally low-paid workers. Increases to the national living wage, the recent hike in employer National Insurance Contributions, as well as the need to offer a contribution-based workplace pension to eligible employees, is seeing operating costs rise while income remains static.

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Close your nursery via liquidation

If you run a nursery, playschool, or provide early years care, it is likely you have found the past couple of years financially challenging, unless you already had healthy cash reserves. If your nursery or childcare business is struggling financially, you may be considering whether placing the company into liquidation is the best option. Voluntary liquidation of a company is achieved through a process known as a Creditors’ Voluntary Liquidation – or CVL. CVLs are initiated by the directors or shareholders of an insolvent company, and allow for the business to be wound down and brought to an end in an orderly manner under the supervision of a licensed professional.

A company can only be placed into a CVL by a licensed insolvency practitioner. They will first need to determine whether liquidation is appropriate for your nursery, or whether there are any alternative options. While liquidation is a major step for any business to take, when it is a nursery, childminding, or early years provider which is being liquidated, the process must be handled with extreme caution to ensure minimal disruption throughout the process.

Liquidating a nursery does not just impact the directors of the company itself, but also the lives of parents and children who rely on the business to provide this vital care. By taking the advice of a licensed insolvency practitioner you will be able to understand exactly what liquidation means for you, your staff, and the children under your care.

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While selling a business may seem like the best outcome, for many nurseries this could be a tough process particularly during a worldwide health and economic crisis. Having the right people on your side could increase the likelihood of a successful sale considerably. Real Business Rescue has an in-house corporate finance team who can help you navigate the whole process, from ascertaining whether your nursery is saleable, through to valuing and marketing the business for sale.

We will use our extensive network of investor contacts to gauge the market and expertly determine whether your nursery is a desirable acquisition opportunity in the current climate. If it is, we know exactly how to market your nursery and who to present it to in order to secure a sale.

If we do not believe your business is going to be saleable, our licensed insolvency practitioners will still be here to talk you through your options for either closing or rescuing the nursery.

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If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
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Rescue my nursery

Even if your nursery is currently struggling to make ends meet, this does not necessarily mean it is beyond rescue. Depending on the financial and operational performance of your nursery, as well as its likely future viability, there are a range of business rescue, recovery, and turnaround options which can be explored.

If your nursery has a track history of good financial performance, the chances of effecting a successful turnaround are greater than if the business has always struggled. When it comes to putting a rescue plan in place, it is vital to understand the root cause of the problems and also how these are manifesting themselves in your day-to-day operations.

If your nursery is experiencing acute cash flow worries and has subsequently fallen behind in meeting its outgoings whether to creditors, HMRC, or your landlord, beginning a conversation with those you have fallen into arrears with is often the best place to start. This type of negotiation can be done on either a formal or an informal level depending on the level of debt owed as well as your ability to repay. This could help lessen your monthly outgoings for an agreed period of time, allowing your cash flow back to recover.

If your nursery owes its chief debt to HMRC, one solution may be to enter into a Time to Pay (TTP) arrangement to spread your tax arrears over a longer period of time. Your ability to negotiate such an agreement will largely depend on your ability to clear your arrears within a reasonable length of time – typically no more than 12 months – as well as being able to demonstrate a good track record of adhering to your HMRC obligations in the past. 

While a TTP can provide the time and space needed to help your nursery build back up its cash reserves, if you have a number of creditors who you are struggling to repay, this type of arrangement may not go far enough.

If there are multiple debts to consider, a Company Voluntary Arrangement (CVA) may be a more appropriate solution. A CVA is a formal payment plan entered into by an indebted company and its creditors which can include suppliers, HMRC, as well as landlords. A CVA will typically run for between 3-5 years, during which time the company will make regular repayments to cover outstanding debts, however, this will be at a lower and more sustainable rate than current payments. Depending on what your nursery can afford to repay, some debt may also be written off as part of the process.

A CVA can only be entered into under the guidance and supervision of a licensed insolvency practitioner. They will be in charge of drawing up a proposal and presenting this to creditors of your behalf. At least 75% (by value) of creditors must agree to the CVA before it can be implemented, however, once this is achieved the CVA becomes legally-binding on all parties.  

If your creditors are becoming increasingly hostile, however, and are threatening legal action, you may need to place your nursery into administration in order to protect the company from being forcibly wound up by creditors.  Once your nursery is in administration, it is granted legal protection through what is known as a moratorium. This prevents creditors from beginning, or continuing, with any litigation proceedings, giving the appointed insolvency practitioner time to formulate a workable plan going forwards.

Administration is not a position a company can stay in indefinitely; at some stage it will have to exit administration, however, its exit can be managed in a number of ways. A nursery may exit administration and immediately enter an alternative rescue procedure such as a CVA, it may be sold to a connected or unconnected third party, or it may be the case that sufficient restructuring was able to be done while in administration allowing the business to continue trading in its current form. For some companies, however, there may be no way of rescue and therefore no alternative but to exit administration and to enter liquidation.

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