Setting up an Early Years provider business

Caveat: please note this page is not a comprehensive overview of the laws and regulations businesses must follow but is intended to provide useful information for early years providers. For advice on wider business support, please see Business.gov.uk – Find the right support for your business.

Government information on early years and childcare

When delivering early years entitlements, you will need to operate within the terms and conditions of your local provider agreement. Some conditions apply across the whole of England, for example that you cannot enforce mandatory charges in relation to funded hours, but others will be more specific to your local area. Your local authority will be able to provide further information on what applies to your business

As well as regulations around early education and childcare, providers will also need to understand consumer law. The laws you will need to understand can be found in the: Selling goods and services: complying with consumer law guidance.

Business Support Tools

Below are some business support tools you might find helpful to understand your sustainability. They were developed by one local authority to support their providers and are shared with permission. You may also want to check whether your local authority has additional or alternative tools to support you. The tools are:

• A business plan template to help you set out your business plan
• A business sustainability health check to help you gain a clear understanding of the overall health and sustainability of their setting.
• A cashflow tool to help you map income and spending so you can plan ahead, avoid cash gaps and make informed decisions
• An occupancy calculator to help you work out your maximum capacity.
• A marketing plan to help you decide what it is you are going to do to market your business
• A marketing action plan template to help you stay visible throughout the year and keep a steady flow of enquiries into your setting
• A SWOT analysis tool to help you see your strengths, weaknesses, opportunities and any threats.

Caveat: please note this page is not a comprehensive overview of the laws and regulations businesses must follow but is intended to provide useful information for early years providers. For advice on wider business support, please see Business.gov.uk – Find the right support for your business.

An important part of running any business is managing its finances, ensuring it is both turning a profit and running in the most efficient way it can. Some of the key concepts, and how they might apply to early years providers, are set out below.

For more information on how government funding for early years works, you can read the Early years funding rates 2026 to 2027: easy explainer.

Breakeven point

You should make sure that you know your breakeven point.

The breakeven point is when a provider is covering all costs (staff, rent, supplies, insurance, etc.) without making a profit or a loss. A breakeven analysis should be dynamic and completed regularly to account for growth, changes in service delivery, or evolving community need. Breakeven analysis helps to understand:

• the cost of delivery for each age group
• how many children are needed in each session/per hour to cover costs
• which areas of the business make a surplus and which may be causing a loss

and this allows informed decisions to:

• set realistic fee structures for paid for hours for each age group
• plan for growth, profitability, and sustainability.

To complete a Breakeven analysis, a setting will need to set out:

• Fixed costs: these stay the same regardless of occupancy/the number of children that attend (e.g. rent, salaries, insurance)
• Variable costs: these change with each child (e.g. food, materials, utilities)
• Income: the fees charged/funding rate per child per time period (e.g. weekly or monthly)

Providers should aim to reach their breakeven point at an occupancy level of less than 100% (Some local authorities recommend 80%), so that you have a financial buffer if something happens, for example if a child leaves your setting.

Profit and loss

Profit and loss is the summary of income and expenditure.

It helps you to reflect on the past and what has happened, and to identify trends and highlights potential actions.

Your income will come from:

• Government funding
• Parent fees
• Grants
• Rebates

Your expenditure will come from:

• Staff team
• Venue
• Resources and activities
• Marketing and promotion
• Operational costs

Budgets

A budget is a financial plan, which contains predicted income and expenditure over a specified period. Budgets are normally set annually. Preparing a budget at the start of each financial year works well. A budget will help you check that the level of money you have coming in will more than cover your planned expenditure. When you create a budget you need to consider what budget is mandatory, that is, what do you have to spend, and what is optional. he budget will help you assess whether you have enough funds for your optional expenditure.

Cashflow forecast

Your cashflow forecast is a projection into the future that uses the same figures as the budget, that illustrates when money is received or paid out. This shows if there are enough funds to cover expenditure and reflects what happens in the bank account.

Monitoring and financial controls

You should be monitoring your income and expenditure to make sure they match your plans. You should have controls in place to ensure money is spent and earnt as intended. And you should ensure changes can be made if required in order to remain sustainable.

Customer lifetime value

Customer lifetime value (CLV) is a way of looking at the total predictable value of a child’s journey in a provider, from when they first become eligible for funded hours until they leave for school or another setting.  Historically, most funded children only entered provision at age three-years-old, meaning providers could only rely upon around 12-18 months of funding income. With the expansion of entitlements from aged 9 months, the funded journey has extended to last between 3–4 years duration, significantly increasing the overall financial value per child for the provider.  Understanding CLV helps to:

• See the whole journey of a child, not just one year or one room.
• Recognise sustainability depends upon retention keeping children through each stage.
• Plan staffing and business models to reflect changes in both funding rates and ratios as children move up/grow older.
• Balance unit economics (today’s costs per child/week) with long-term sustainability.

For example:

• Old model (mainly three to four-year-olds): approx. £10k per child.
• New model (nine months to school): approx. £40k per child.

This shift is transformational: it reframes government funding from a short-term top-up into a predictable, longer-term business income stream.

Maximising age-related funding

In this section we expand on the hourly funding rate for each entitlement varying to reflect the costs of delivering provision to different age groups.  By combining age groups in sessions or at certain times of the day a provider can increase the total potential income per hour.

Blended age groups

Many settings deliver provision in specific age groups, such as babies, two-year-olds, and pre-school children.  Many will already mix age groups at quieter times to optimise ratios and minimise costs and therefore maximise the income per staff member.  Many providers have expanded to admit younger children which in a mixed group can increase overall hourly income and the hourly rate per staff member.

Maximising age-related funding at transitions

Many providers transition children to the next age group or room in line with funding timelines (from the term after the appropriate birthday), others transition children on their birthday. Now funding extends from nine months, admitting new children on their second birthday or transitioning them to the next stage on their third birthday, rather than waiting until term after birthday, can increase hourly funding as younger children attract higher funding rates.  In the following example, the termly income increases by £5,757 as a result of the transitions on birthdays.

• The DfE Chargeable extras: template helps give information on what to display on websites about the: costs for all chargeable extras; and patterns of hours that parents can take the entitlements.
• Effective management of invoicing consumables and charging structures is crucial for maintaining transparency and fairness as required by the DfE statutory and operational guidance. This recording considers the requirements of operational guidance and explores invoicing good practice.  The following recording produced by Childcare Works can be found Invoicing, Consumables, and Charging Structures 
• Information and strategies needed to make the most of government funding. This recording discusses the different types of funding streams, how to apply for them, and ways to use these funds strategically for long-term sustainability. Making Funding Work: The Use of Government Funding as a Sustainable Business Model

Childcare support funding

Early years and childcare services are paid for in three different ways.  The first is through government funding passported by local authorities to contracted early years and childcare providers offering universal 15-hours for all three- and four-year-olds, 15-hours early learning for least advantaged two-year-olds (now referred to as Early Learning for 2-year-olds), and 30-hours for eligible working families of children from nine months to when they start school.

The second is where parents pay a provider directly outside of government funded provision, for example, for additional hours of childcare they require to enable them to work, or for additional services not covered by the funding.

The third is where parents receive financial help towards childcare costs through a wide variety of sources such as, workplace childcare offers, Tax-Free Childcare, Universal Credit, Care to Learn, and/or grants to support higher education.

Understanding what financial support is available to families with children is important.  This ensures families access everything they can to reduce the direct costs of childcare, enabling them to buy or access exactly what is needed, and where they want it.  Importantly, this also supports providers to be able to set a realistic fee structure for paid for services which achieves the income they need to not only cover delivery costs, but also to grow and succeed.

Universal Credit – For working families claiming Universal Credit with children under 17 years old. Parents can claim back up to 85% of eligible childcare costs.  Upfront childcare costs may be available to eligible parents moving in to work or increasing hours.   Universal Credit Childcare | Best Start in Life

Tax-Free Childcare – For eligible working parents who can receive a £2 top-up towards the cost of their childcare for every £8 they pay into their tax-free childcare account. https://www.beststartinlife.gov.uk/childcare-early-years-education/tax-free-childcare

Care to Learn – For parents who are under 20 years-old at the start of a publicly funded course, such as a school or sixth form. This is paid directly to the childcare provider. https://www.gov.uk/care-to-learn

Discretionary Learner Support – If a parent is 20 years old or over and in further education, for example, they can apply if they are studying for an NVQ, BTEC or PGCE  https://www.gov.uk/learner-support

Childcare Grant – If a parent is in full-time higher education, they can apply for a grant to pay for childcare costs for children under 15 (or under 17 if they have special needs). https://www.gov.uk/childcare-grant

Charging

When delivering entitlement hours, providers are able offer and charge for meals and snacks, consumables such as nappies and suncream, and extras such as trips or foreign language tuition. These charges must be completely optional, and so an alternative needs to be in place that allows parents to access their entitlement hours for free if they do not want to buy these extras.

Providers can also charge for any additional hours a parent wishes to purchase on top of the entitlement hours as per their usual terms and conditions, so long as these are not a condition of accessing an entitlements place.

Useful resources on business management and finance

Childcare Works produced a series of videos on business management and finance, including;

• on Business Support, Sustainability and Funding in an Early Years context
• on Helping Providers See Opportunities, Not Challenges,
• on The Use of Government Funding as a Sustainable Business Model,
• on Invoicing, consumables and charging.

You should also learn about Making Tax Digital and the Employment Allowance.

Caveat: please note this page is not a comprehensive overview of the laws and regulations businesses must follow but is intended to provide useful information for early years providers. For advice on wider business support, please see Business.gov.uk – Find the right support for your business.

It is vital that providers market who they are, what they can do for parents and children, and what makes them both special and unique.

Once you understand the needs, preferences, and expectations of parents looking for childcare services in your area, then you need to attract new families and retain existing ones through effective marketing and sales strategies.

This is your opportunity to market and sell your services (including your chargeable extras) to prospective parents. Through effective marketing, you can help parents understand the value your business provides and why they should pick you, and why they should buy into your chargeable extras.

Marketing doesn’t stop when parents sign up to your setting. It is important that you communicate regularly with families about what is going on, and what costs may be attached to any optional extras. Transparency is very important for helping everyone to understand what is happening and reduces the risk of complaints from families about charges they may not have expected.

Useful links

Childcare Works produced an Introduction to Marketing for those who are new to marketing.

Childcare Works also produced a video on Marketing and Promotion: Finding and Keeping Customers

Childcare Works also produced videos on the Three Ms of Marketing, these are;

• Market (Who is your target market?)
• Message (What are you saying to your target market?)
• Methods (Where are you going to give those messages?)

The Advertising codes of practice can help you to understand what you can and cannot say in your marketing, and can help you avoid issues in the future.

Caveat: please note this page is not a comprehensive overview of the laws and regulations businesses must follow but is intended to provide useful information for early years providers. For advice on wider business support, please see Business.gov.uk – Find the right support for your business.

If your business has expanded to the point that you are employing other people, it is important that you understand the processes that you need to follow.

You need to understand the rules and regulations around employing people, and these can be found here:

• Employing people – GOV.UK
• Employ someone: step by step – GOV.UK
• Find training and employment schemes for your business – Scheme Home

Childcare works also produced which you can read through to help understand what you need to do in an early years context.

There are also several resources you can use to help you find the staff you need:

• Do something big – Early Years Careers – where potential applicants can explore career opportunities and entry routes into the early years sector.
• The website’s recruitment resources, including social media graphics, leaflets, and target audience factsheets (with insights/suggested messages to make your recruitment resonate with a variety of candidates).
• Check out the free Find a Job web page on the campaign website, where providers can list their early years vacancies for free and ensure they are seen by a wide pool of potential candidates (user support information can be accessed here).
• You can post job vacancies by job role, location, work arrangements (remote or hybrid) and that results can be filtered to find disability-confident employers.
• You can also create apprenticeship adverts using your Apprenticeship Service Account – a free service provided by the Department for Education (DfE). Creating an apprenticeship advert as an employer – GOV.UK

The Department for Education have also produced a further range of resources in partnership with Foundation Years which can be accessed here:

• Recruitment and Retention in Early Years – Part 1 – Foundation Years
• Recruitment and Retention in Early Years – Part 2 – Foundation Years
• Recruitment and Retention in Early Years – Part 3 – Foundation Years
• Recruitment and Retention in Early Years – Part 4 – Foundation Years

Top five recommendations for providers
Drawing on the models developed in the Childcare Pioneers programme, has produced an Early Years Roadmap with five actions to improve recruitment and retention through flexible working.  These are summarised below:

Action 1: Reframe the meaning of flexible working

• Think beyond part-time or home working – consider staggered shifts, compressed hours, and job shares.
• Think about flexible working in the context of adapting working patterns to balance the needs of children, parents, the nursery setting and the individual.
• Offer informal options, such as letting a staff member leave early once a week or swap shifts.
• In practice: Consider if a full shift could be covered by two similarly qualified practitioners or whether children could have a principal and secondary key worker to enable both members of staff to have flexibility while maintaining consistency for the child and parents.

More information: Learn more about what flexibility means in early years in this video: www.youtube.com/watch?v=vUByRDDSo48.  For top tips on managing (flexible) teams, read this guide: Managing Flexibility in Early Years – A Guide

Action 2: Support and train managers to enable flexible working

• Train managers to confidently identify flexible working opportunities, support staff needs and respond effectively to requests – ensuring flexibility is embedded in day-to-day management, not just handled reactively.
• Ensure managers are up to date with the latest legislation. As of April 2024, employees can request flexible working from day one and are entitled to make two statutory flexible working requests per year. Managers must respond to requests within two months.
• Use tools like the Timewise Flexibility Maturity Curve © to measure current attitudes to flexibility, ranging from “tolerate it when requested” to “encourage and celebrate flex”.
• In practice: assess patterns in daily and weekly demand to identify quieter times in the day and week and use this insight to design more flexible roles – such as part-time, staggered, or term-time shifts – without compromising the quality of care.

More information: Government guidance: Flexible working: Overview – GOV.UK and the Timewise Flexibility Maturity Curve © (page 5) here.

Action 3: Free-up time to think flexibility
When working to full capacity with staff shortages and increased demands, finding time to think about flexibility can be difficult. But in other frontline sectors, Timewise has proven that introducing more flexibility not only improves employee engagement but has a positive impact on productivity at work.

Here are some examples of activities or roles that could be done differently to allow more flexibility and efficiently:

• Identify admin tasks (planning, reports, handovers) that could be streamlined, digitised or done at home.
• Planning and rostering: for shift-based working, give staff at least two to six weeks’ notice of their shifts to improve work-life balance, reduce stress, and minimise last-minute changes or absences.
• In practice: consider whether rostering or reports can be written at home or if technology, such as AI, could help. Or look to see if handovers could be shared between two key workers.

More information: to see how flexible working has helped other hard-to-flex sectors, see the Timewise report Construction-pioneer-programme-one-year-on.pdf

Action 4: Open up the conversation

• Shift from one-off requests to a proactive, whole-setting approach.
• Ask staff regularly about preferred working patterns and collaborate on solutions.
• In practice: Bring teams together to find solutions for themselves. Staff may agree that one person starts late on Wednesdays, covered by a colleague,

More information: Use the template in the Timewise ‘Flexible working a guide for nursery managers’ report to structure conversations: Timewise-A-Guide-for-Nursery-Managers.pdf

Action 5: Test and measure new working patterns

• Do not be afraid to trial new working patterns, new ways of rostering or new recruitment campaigns.
• Be transparent with parents and staff about what’s being tested and why.
• In practice: Consider what you want to get out of the trial: for example, if you want to recruit more qualified staff by offering a 10am-2pm shift pattern, measure how many applications you received previously for the same role at the same level.

Case study: A practitioners’ view on navigating flexible working

For tips on how to navigate flexible working and the benefits it brings, Childcare Works spoke to nursery owner, Lucy Lewin and Steve Brennan of Love Childcare recruitment, who share their experience here.

Recruitment in early education and childcare remains a significant challenge across the country.  While the reasons are complex and multifaceted, what has become increasingly clear is that successful recruitment is no longer about simply posting a vacancy and hoping for the best.  Providers and recruiters alike are having to think differently, act strategically, and connect more directly with the values and needs of today’s workforce.

At Little Angels, a small nursery in rural Uppingham, recruitment is treated as a core part of the business.  The setting’s owner, Lucy Lewin, made the decision several years ago to stop waiting for the right candidates to appear.  Instead, she chose to build recruitment into the rhythm of the year.  Twice annually, regardless of vacancies, Little Angels hosts open days for anyone interested in working in early years. Some are experienced practitioners, others are nannies or childminders looking for flexible opportunities, and occasionally they are people entirely new to the sector who are simply curious.

This approach has been fruitful in more ways than one.  During one such open day, Lucy met Sam, a visitor with no formal experience yet a natural affinity for early years work and a clear values fit.  Although the nursery was not actively hiring at the time, Lucy made a plan to offer Sam a role several months later.  Sam eventually joined earlier than planned, bringing with her passion and new energy and several families too. The story illustrates how thinking long-term and remaining open to potential can change the future shape of a team.

Lucy is not alone in this shift. Steve Brennan, Director of Love Childcare, works with providers across the UK to match candidates to roles in early years, wraparound care, and schools.  Steve and his team supported candidates through over 17,000 job applications last year alone, resulting in more than 500 new starters.  From his perspective, the landscape has changed dramatically.  It is now very much a candidate’s market.  Applicants are scrolling through hundreds of vacancies and paying close attention to just two things: salary and location.  To stand out, providers must lead with clarity, culture, and opportunity.

One of the most successful strategies Steve recommends is reframing how providers think about attraction.  A job advert is no longer enough.  What matters is how the setting is perceived in the wider marketplace.  That includes social media presence, how engaged and welcoming the tone of voice is, and how confident and consistent the organisation is in telling its story.  Candidates, especially younger ones, are drawn to employers they recognise from social platforms.  They want to feel they are part of something before they even apply.

Lucy has seen this first-hand.  Little Angels shifted its social media approach away from solely marketing to parents. Instead, it began showcasing what it feels like to be part of the team. Posts now include staff-led content, celebrations, behind-the-scenes stories, and videos that bring to life the culture of the setting.  These are authentic and staff-driven.  In Lucy’s words, social media is free, and early years practitioners love making the content themselves.  Candidates have told her that these posts made them feel like they already belonged, even before stepping through the door.

Both Lucy and Steve highlight the importance of flexibility.  Lucy has introduced a four-day working week for full-time staff, built internal float roles to cover rota gaps, and created part-time contracts specifically designed around the needs of parents returning to work, students, and experienced practitioners looking for more balance. At Love Childcare, Steve has seen growing interest in split-shift models, particularly among candidates who want to work early mornings and afternoons with a break in between.  This mirrors the pattern of wraparound care and suits those who cannot commit to full nursery days but still want to stay in the workforce.

A particularly creative approach Lucy has developed involves partnerships with nannies and childminders.  Many of these professionals find themselves with fewer hours once the children they care for start school.  In response, Little Angels has offered flexible contracts that allow these practitioners to work in the setting a few days a week.  Families benefit because they retain a trusted adult without the cost of a full-time arrangement, and in some cases, they are able to access funded hours by working through the nursery.  One nanny continued her funded hours role within the nursery even after her original child had moved on to school.  This model keeps experienced practitioners in the sector and offers continuity for children and families.

Steve also emphasises the importance of proactivity.  He encourages providers to reach out to candidates quickly, conduct short screening calls to understand what applicants are really looking for, and send personalised candidate packs before interviews.  These packs can include a short welcome from the manager, team stories, and examples of career development within the setting. In his experience, this early engagement helps candidates feel a sense of connection and increases the likelihood of them accepting and staying with the offer.  For settings where time is tight, Steve also recommends outsourcing parts of the process to recruitment partners who can manage the initial engagement on the setting’s behalf.

Timing also matters.  Many candidates are applying for several roles at once.  When providers set rigid interview dates without flexibility, they may lose strong applicants who are simply unavailable at that time.  Flexibility in interviews, trial shifts, and onboarding schedules can make the difference between securing a great team member or missing out altogether.  At Little Angels, each candidate who reaches the interview stage is invited to complete a Gallup Strengths profile.  This helps the team understand both a person’s experience and their natural talents.  Lucy uses the results to guide the conversation, understand how candidates might contribute to the team, and ensure that values are aligned.  Even when a candidate is not selected, they are offered a follow-up call with a short coaching conversation on how to use their strengths in future applications.  This has built a reputation for fairness, care, and professionalism that candidates appreciate and remember.

What ties all of these approaches together is mindset.  Providers who see recruitment as a passive, administrative function are struggling.  Those who are engaging actively and creatively, who understand the power of their culture and their story, are seeing results.  Whether through open days, personalised interview processes, or flexible roles built around real lives, the message is clear.  Recruitment is not about filling vacancies.  It is about building a team, one connection at a time.