The EYFS framework, set by the Department for Education, outlines the standards for learning, development, and care for children from birth to age five. The goal of EYFS is to ensure that our children are looked after safely and are adequately prepared for their school years. The EYFS framework is typically influenced by Ofsted and their Ofsted inspectors, who try and ensure three key elements:

• Learning and development goals 

• Ensuring that the children are safe and their welfare requirements are met 

• The staff to child ratios and qualifications are adhered to. 

As with everything these requirements have a financial aspect to them such as staffing costs, training and infrastructure investments.

Complying with EYFS can strain even well-established nurseries. 

So what are the implications financially of having to comply with EYFS? 

1. Staffing Costs

The most obvious one is staffing costs - legally you have to adhere to staff to children ratios for various age groups:

• 1:3 for children under 2

• 1:5 for 2-year-olds

• 1:8 for children aged 3 and above (or 1:13 with a qualified teacher)

Ratios are impacted by whether it's a qualified teacher or not, so those with a bit more experience might be allowed to look after a larger group. 

Ratios can add strain on managing staff. Some staff, for example, may specialise with babies or some with older age groups. This may add some complications.

What does this mean? Nurseries will typically need to be flexible with staffing, especially as children transition between age groups, and or children leave and new children arrive. 

These ratios often mean hiring additional staff, which increases payroll expenses. For a nursery managing 20 children under 2, the salary burden can be significant. Beyond this, ongoing training for EYFS-compliant practices adds to costs.

2. Training and Professional Development

In addition, thrown into the mix, will be the requirements to train your staff on EYFS practices. 

EYFS compliance requires staff to be well trained in safeguarding, first aid, and child development. Nurseries must allocate funds for:

• Continuous Professional Development (CPD) courses

• First-aid certifications (renewable every three years)

• Leadership training for managers

While these investments ensure quality, they can reduce cash flow if not budgeted effectively.

3. Regulatory and Safety Standards

Financially, you also have to consider regulatory and safety standards requirements.

Compliance with EYFS often requires upgrades to nursery premises, such as:

• Safety around the premises - installing secure fencing and child-safe fixtures.

• Providing age-appropriate learning materials and equipment.

• Maintaining health and safety certifications

• There are also other requirements around food where, for example, you have various regulations and nuances.

These improvements can require a significant upfront investment but are essential to meeting EYFS safeguarding standards.

4. Government Funding Shortfalls

While the government offers free childcare funding, there is a pressure that this funding (15 and 30 hours) can fall short of covering actual costs. This forces nurseries to consider other revenue streams or to increase fees. Ultimately this can put pressure on parents joining nurseries and indeed could also limit growth.

So what are some sensible financial planning that you could do to help tackle some of these obstacles? 

To stay compliant without sacrificing profitability, nursery owners need strategic financial planning. Here are actionable steps:

1. Budget for Staff Recruitment and Retention

Staffing is often the largest expense. To manage it:

• Conduct a detailed analysis of staff-to-child ratio requirements. You could analyse your nurseries age groups and pipeline and determine with the staff to child ratio requirements a forecast for future needs. Consider software to help such as Childcare Connect.

• Invest in staff retention through incentives like CPD opportunities or workplace benefits.

• Staff cost monitoring can be done in software packages such as Xero or QuickBooks which helps monitoring and identification of inefficient patterns.

2. Allocate Funds for Training

Closely aligned to staffing costs is training - which could be broken into 2 areas:

• Mandatory training (safeguarding, first aid)

• Developmental training (leadership, early years pedagogy)

Budgeting or planning for these costs helps manage them. 

Some training costs may be offset by government grants or partnerships with local authorities.

3. Optimise Government Funding

Optimising government funding is key. Understanding the impact of free places, and their cost relative to revenue received is needed:

At times free place funding rates don’t cover the costs or give you small margins, so keeping a track of the costs of each free place is really important.  Monitor local funding rates to understand where your business is in this regard.

Use financial projections to assess whether funded places are profitable or need adjustment. Understanding these costs allow you to set realistic fees across your nursery, or look at alternate options such as chargeable extras, limited activities, number of free places offered amongst other options. 

Administration of free entitlement claims is important so that you don’t have payment delays because of disputes or indeed under payments because of lack of record keeping. 

Managing this area of your nursery business effectively to make a big difference.

4. Leverage Tax Relief Opportunities

Nurseries may qualify for tax reliefs like:

• Capital Allowances: Deduct the cost of equipment or premises upgrades.

• R&D Tax Credits: If you invest in innovative teaching methods or resources.

Work with a specialised accountant to identify and claim these opportunities.

5. Invest in Technology

An area to invest in that would certainly help the management of nurseries would be digital tools.

Digital tools can simplify compliance and financial management. 

• You could consider nursery management software that helps with tracking child development and is aligned with EYFS requirements. 

• You could also invest in accounting software such as XERO or QuickBooks which would allow for cost planning and revenue and expenditure tracking. 

Both of these digital solutions would reduce administrative workload and free up resource for other priorities.

So how do you run a sustainable nursery which complies with EYFS direction as well as ensuring a financially viable and sustainable nursery business?

1. Scenario Planning

One thing you could do is model the financial impact of regulatory changes. You need to be able to model certain scenarios, like the impact of minimum wage increases or staff qualification requirement changes. Both of these could be a result of regulatory changes. When you are faced with changes like this, your model could be run to understand the implications of these changes and prepare for such.

2. Annual Audits

You could run an annual review of compliance with EYFS and tax regulations. This could highlight areas where cost could be cut or resource reallocation.

3. Parent Communication

Be transparent with parents about how fees contribute to EYFS compliance, such as funding qualified staff or upgrading facilities. This builds trust and justifies fee increases when necessary.

4. Networking and Partnerships

Other things that could be done include: collaborating with local nurseries to share training costs and resources as well as joining nursery networks to gain discounted services or grants.

EYFS compliance is a requirement that is needed to successfully run a day care nursery. Nursery managers and staff typically come and work at nurseries because they are passionate about childcare, not so much the admin.  So, unravelling the financial demands associated with nurseries is extremely nerve-wracking, but with the right strategies, they are manageable. We can help.

(c) Warren Davies, December 2024

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