Best Practices for Nursery Financial Management

Good nursery financial management comes down to three things: knowing what each place really earns once funding is taken into account, knowing when the money will arrive, and checking a short list of numbers every month rather than once a year. None of it needs a finance degree. It does need your bookings, your invoices and your funding to agree with each other.

Know what each place earns

A nursery has two customers for most places: the family and the council. For a funded child, the parent's invoice covers only the paid hours and extras; the council pays for the funded hours at its hourly rate for that age band. To see what a place is worth, add the two together.

Work this out by age band, because both your costs and the council's rates differ. Younger children need more staff per child, so a funded hour for a baby costs more to deliver than one for a 4-year-old. Compare each band's funding rate and fee with your cost per child-hour. Councils publish their rates for each financial year, and they change each April.

Set fees and extras you can defend

Your private hourly rate pays for the hours that aren't funded. Around funded hours, the rules in England are stricter: you can charge for meals, consumables and optional activities, but those charges must be voluntary, you can't charge top-up fees, and invoices should show funded hours, paid hours, food, consumables and activities separately. The DfE's statutory guidance sets this out, and your council's provider agreement adds local detail.

Practical habits: publish your prices, review them once a year against your costs, give families notice of changes, and make sure the extras you charge are itemised on every invoice.

Plan for when the money arrives

Parent fees usually arrive monthly; council funding arrives on your council's schedule, often with a payment on account followed by an adjustment once the headcount is confirmed. Some parents pay part of their bill through Tax-Free Childcare, which reaches you from HMRC rather than the parent's bank. A simple cash-flow forecast should show:

• expected parent income by month, after funded hours
• expected council funding by month, including any adjustment after each headcount
• payroll, rent and other fixed costs
• known dips: the summer for term-time families, September before new starters settle

Keep a cash reserve sized to the gap between when you pay staff and when funding lands.

Keep debt from building up

• Agree payment terms at registration and put them in your parent contract.
• Send invoices on the same day each month so families know when to expect them.
• Offer the payment routes families use, including Tax-Free Childcare.
• Follow up overdue invoices promptly and politely, and have a written policy for what happens next.

Control the biggest cost: staffing

Staff are almost always a nursery's largest cost, and the one most affected by day-to-day decisions. The useful question isn't “how many staff do we have?” but “how many children are in each room at each part of the day, and how many staff does that need?” Looking at occupancy across the week, rather than as a daily headcount, shows the quiet afternoons where a place could be sold and the busy mornings where cover is tight.

The numbers worth checking every month

• Occupancy by room and session, against the capacity your staffing allows.
• Income per place, combining parent fees and council funding.
• Unbilled sessions: booked days that were never invoiced.
• Aged debt: what is overdue and for how long.
• Funding: declarations still to be signed and eligibility codes due to expire.
• Staff cost as a share of income, tracked over time rather than against a rule of thumb.

Make your systems agree

Most of the problems above come from the same root: the register, the invoices and the funding claim are kept in different places and drift apart. When invoices are worked out from the sessions children are booked for, and passed straight to your accounting package, those checks become a matter of reading a report rather than reconciling three spreadsheets.

Pigeonhole bills from each child's sessions, shows funded hours on every invoice, sends invoices to Xero or QuickBooks and brings payments back, and has reports for unbilled sessions, outstanding invoices and projected council funding. See nursery accounting software for how it works, or read what to look for in nursery accounting software.