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How to start a nursery

If you love working with kids then setting up a nursery business idea could be for you. Here's our guide on how to open a nursery...

What is a nursery business and what type of entrepreneur is it suited to?

A nursery is a pre-school childcare facility and is staffed by trained carers. They are typically open all year round and all day to cater for working or busy parents.

But, if you aren't sure about committing to a full-time business, there are other ways that you could be involved in childcare. For instance, setting up a creche could be a more flexible way for you to benefit from the advantages of running a nursery with added flexibility. A creche typically operates on non-domestic premises and by setting up a creche you're typically catering for parents who need their children to be looked after longer than school hours, so this could be a breakfast club or after school club for instance.

You could even set up as a self-employed childminder at home, read our guide on how to become a childminder here. Not all require you to be fully trained or to work full-time. But anyone caring for children under the age of eight will need to be registered with the local authority.

If you're a student looking for a part-time business opportunity or side hustle in the childcare industry or are considering becoming a childminder, then you could also look to marketplaces like Student Nannies  which connects students with parents who need help with childcare.

Starting a nursery is certainly not a ‘get-rich-quick' plan. In fact, you could probably make more money driving a taxi than running a nursery. But, if you want a job – and a business – that offers hourly challenges and a lot of rewards then setting up a nursery could be just right for you.

It is a business that tends to attract working parents – either because they think they could do a better job than the nurseries already on offer, or because they discover that there is nothing available in the area at all.

The benefits of starting a nursery business

After her children were born, Kate Willink decided to leave her job as a management accountant but kept on some work by doing the books for the local nursery. When one of the nursery nurses left, she decided to open a nursery called The Wooden Horse in Easingwold, North Yorkshire.

“I couldn't go back to my job,” she explained, as the hours that she worked meant that she would never see her children. “This is the next best thing. It isn't as much money but I get other things from it. It is mine and my partner's business and I get to see the children develop.”

The potential drawbacks of starting a nursery business

But don't fall into the trap of thinking that looking after your own children will give you the experience necessary to open a nursery. You need to have the patience of a saint. One child screaming or crying can be tiring, but imagine 20 or more kids all competing for your attention.

You will also need endless enthusiasm and energy to set up a nursery. Don't expect to win prizes for your fashion sense either. Nappy changing and baby feeding could soon spoil your best clothes. But if you can cope with the tears and tantrums, this is a business that offers much more than financial gain.

First things first. To open a nursery, you need to check out the competition. To help you, your local council will have a list of all registered childcare providers. As well as checking out existing nurseries, look at playgroups, mother and toddler groups – anything that will be your competition. And don't forget that might include nannies.

Creating a business plan to open a nursery

Kate Willink, founder of The Wooden Horse in Easingwold, explains that she and her business partner spent six months simply writing the business plan before starting a nursery. She used the local library, the council and the internet to find useful background information on the area, the average wage and even figures for how many children go to nurseries in the county. Armed with demographics, customer profiles and a financial projection for the first 12 months, her business loan was quickly approved by Barclays.

You can download your free business plan template here.

Market research you should undertake before starting a nursery business

Find out whether there is a market for another nursery business. A census can tell you local birth rates, the number of nursery-age children and the general economics of any particular area. Not only will this give you information on how many children there are but it should allow you to build a profile of your typical customer and gauge whether there will be demand if you start a nursery business.

You should also think about how many children you want to look after in your nursery as this will affect the property, staff and pricing. If this is your first venture in starting a nursery, don't try and compete with the chains that offer places for over 100 children. But to be viable, you will probably need to have at least 25-30 places for your nursery or creche.

Once you have looked at the competition and defined your ideal customer, you should start to get a feel for what to charge for your nursery business. Prices will vary across the country; the average cost of part-time (25 hours a week) care for children under two years old is currently around £110 a week nationwide, while in inner London it is more than £140 a week – average figures for your region can be found here. The price will also vary according to how old the children are, as it costs more to look after babies than toddlers.

But like any business, it will take time to set up a nursery. Your business plan should allow some time before parents are beating a path to your door.

It will probably take at least a year before you are full and it can be hard going on the way, says Ilana King of Blooming Babies Day Nursery in Stamford-le-Hope, Essex. “I assumed that the children would come in at a steady rate but that isn't the way it happened. We had a very long period with very few children and then a huge influx.”

For detailed advice and guides to conduct market research for your nursery business click here.

The good news is that you don't have to hire all the staff until your nursery fills up and there are flexible finance packages available – for example, loans with capital repayment holidays.

The costs of running a nursery

Firstly, and most importantly, before you look to open a nursery, you must find suitable premises. The regulations set out how much space you will need per child, so once you have worked out how many children you want to have you will know the minimum space required.

Finding premises to open a nursery business

You can either rent or buy to open your own nursery. But if you want to rent, make sure that you have a reasonable lease on the property. It will be very hard – and expensive – to move after only two or three years in a property.

If you don't want to open a nursery from scratch, you could look at modular nurseries. They are significantly cheaper and can be up and running very quickly. But they might not be popular with the local planning authorities – particularly if you are in a green belt area. So before you make any investment, make sure that the local planning department will give approval for them.

Based on a nursery for 25-30 children you should expect a minimum outlay for a modular nursery to be upwards of £80,000. But to build a nursery from scratch the sky is the limit depending on the location and size of the building.

If you are making structural alterations to a building that already exists, you will need to factor in several thousand pounds depending on its current state. The building might also require some work to bring it up to fire safety standards; for example, ensuring that you could evacuate all the children in an emergency. You should also ensure that there is adequate security, for example, extra locks on doors and windows to keep strangers out and children in – you can read more on our page to your potential security and CCTV options.

Purchasing toys and equipment for your nursery business

You should also budget at least £8,000 for toys and equipment. This can include anything from books to tricycles, and puzzles to bean bags.

And, don't forget, that with 25 children playing all day long, the equipment will wear out more quickly than normal. Setting aside a regular amount for replacement should help when the bills come in, but you can also save on the costs of setting up a nursery by buying toys and kit second hand, as long as the equipment comes with a Kitemark, and is thoroughly disinfected before use.

What can I earn running a nursery?

Once you have established the nursery and a reputation in the area, you should find that places fill up fairly quickly. With more mothers returning to work and the government providing extensive support for nursery places, good quality childcare is in short supply in many areas.

But setting up a nursery isn't a business for anyone looking for early retirement. Even when your nursery is full – and remember that this could take some months to achieve – you are likely to find that up to 75% of your fees from the children go on fixed costs. Staff and premises are likely to be the biggest costs of running a nurery but food, nappies and equipment all add up.

If you are looking to start a business that will make a tidy profit, then childcare probably isn't the best industry to get into. According to research carried out by the National Day Nursery Association back in early 2011, 62% of British nurseries regard making a profit as their biggest challenge.

Despite the fact that demand for childcare in the UK is high, full-time day care can constitute a large proportion of a parent's wage. Your costs of running a nursery will inevitably rise, but when you try to put prices up you are unlikely to get a positive response from parents. You should also remember that many of the costs are fixed, so expansion is the only way to grow your nursery business.

Setting up a nursery isn't a way to get rich quick but does come with a lot of other rewards

Based on the competitive nature of running a nursery, anything above breaking even could be considered a success. Remember also that because of the relatively high start-up costs and low profit margins involved it could take several years before you are close to making back what you originally invested in opening your nursery.

Jennie Johnson founded Kids Allowed, a successful chain of children's centres. Turnover reached £3m in five years, and Johnson has earned a string of accolades, including an Inspiring Women in Business award in May 2011. However, the business cost a heavy £5m to set up in the first place.

Freya Derrick set up her Hopscotch Day Nursery for £600,000 and is now turning over £50,000 per month with 82 children currently attending the nursery. “You've got to decide right from the beginning if you want to run the business as a lifestyle choice, or as a profit making thing, and that will determine the size of the operation. I wanted to have the freedom to spend time with my children, but I also wanted to run a successful business.”

So if setting up a nursery isn't just about money, why do people do it? Working with children, creating an enjoyable environment, training young people to be nursery nurses and working within a community are just some of the reasons why Blooming Babies founder Ilana King loves her job running a nursery. But, as she says, “it is not just about working with children. The children are the first priority but you are still running a business.”

Tips and useful contacts on how to open a nursery

  • Try to find existing school or nursery premises that will make it a lot easier to get the premises approved
  • If you don't have the right experience to open a nursery, make sure that you get a very experienced officer in charge
  • Think carefully about the space that you have and how many children you can fit in your nursery business – if you are providing a baby room you will need to think in multiples of three
  • Make sure that you can get through the 12 months without your nursery being full. It does take a long time to get the numbers up
  • Reserve the right to refuse entry. Nothing will kill off your business quicker than one unruly child who bullies others. Parents who see their child coming home unhappy every night will soon move them to another nursery
  • Get the fees paid up front, and make sure that parents are paying all year round. Most nurseries allow parents to book three to four weeks' holiday which do not have to be paid for, but otherwise they should pay to reserve the place
  • Track all the enquiries you get for your nursery business to see how effective your marketing is
  • Allow at least six months for the registration to be finalised before you set up a nuarery. In particular, every member of staff will be checked for their suitability to work with children and this can be slower if staff have lived out of the borough in the last five years.

Useful contacts for running a nursery business

Ready to get started? Find out everything you need to know about how to start your own business here.