You know childcare inside out, and you’ve found a building that could work. Now the bank, the landlord or an investor wants to see a plan, and the free templates online are mostly blank boxes. The hard part isn’t describing your nursery. It’s showing that the numbers work once you add in government funding rates, staff ratios and the months before every place is filled. This guide walks through a business plan for nursery settings in England, with a worked financial model you can adapt.
- Most nursery income now comes through government-funded hours, paid at rates each local authority sets.
- Staff costs are usually the largest cost by far, and they’re driven by the legal staff-to-child ratios.
- Lenders want to see your break-even occupancy and what happens if you fall short of it.
- Childcare from a registered provider is exempt from VAT, so you can’t reclaim VAT on your costs. Budget for costs including VAT.
- Ofsted charges £220 to register daycare premises and £220 each year after that.
What a Business Plan for Nursery Needs to Show
Most business plans follow the same structure. GOV.UK describes one as a document covering your objectives, strategies, sales, marketing and financial forecasts. A nursery plan uses that structure, but three things make it different from, say, a café or a shop:
- It’s heavily regulated. Ofsted registration, staff qualifications, ratios and space rules decide how many children you can take and how many people you must employ.
- Much of the income is government money. Funded hours are paid at a rate set by your council, not a price you choose.
- Occupancy is everything. A room that’s half full still needs staff, heating and rent.
Banks, Start Up Loans, landlords and investors will all read your plan looking for the same reassurance: that you understand these pressures and have planned for them. For the general structure of any plan, see Eternity Accountants’ guide on how to write a business plan.
The Sections to Include
| Section | What to cover | What a lender looks for |
|---|---|---|
| Executive summary | Your setting, places, ages, opening hours and funding ask | A clear, short pitch they can repeat to colleagues |
| The setting | Day nursery, pre-school or sessional care; ownership and structure | That you’ve chosen a model that fits the building and the market |
| Local market | Local births, waiting lists, competitors’ fees and the council’s childcare sufficiency report | Evidence of demand, not assumptions |
| Services and fees | Funded hours offer, paid hours, meals and consumables charges | Prices that match local rates and funding rules |
| Premises and registration | Lease, fit-out, outdoor space, Ofsted timeline | Realistic opening dates |
| Staffing and management | Structure, qualifications, recruitment and retention | That you can meet ratios from day one |
| Marketing and enrolment | How you’ll fill places, and how fast | A believable ramp-up |
| Financial plan | Start-up costs, three-year forecast, cash flow, break-even | Numbers that tie together |
| Risks and sensitivity | Low occupancy, staffing gaps, funding changes | That you’ve stress-tested your plan |
Registration and Rules to Build Into Your Plan
In England, a nursery on non-domestic premises must register with Ofsted on the Early Years Register before it opens. According to GOV.UK’s fees page, the registration fee for daycare is £220, with an annual fee of £220 after that. Allow around three months for registration once you’ve submitted a complete application, and don’t promise families a start date before you’re registered.
The EYFS statutory framework then sets the rules that drive your costs. For group settings, the minimum staff-to-child ratios are:
| Age group | Minimum ratio | Indoor space per child |
|---|---|---|
| Under 2 | 1 adult to 3 children | 3.5 m² |
| 2-year-olds | 1 to 5 | 2.5 m² |
| 3 and over, with a qualified teacher working directly with the children | 1 to 13 | 2.3 m² |
| 3 and over, without one | 1 to 8 | 2.3 m² |
Qualification rules also apply, such as at least one Level 3 practitioner in each age group. Ratios are counted across the whole setting, not room by room. You’ll also need enhanced DBS checks for staff, insurance, and food business registration with your council if you serve meals. Wales, Scotland and Northern Ireland have their own regulators and rules, so check the relevant one if you’re not in England.
Choosing your age mix
The ratios mean the age mix you choose shapes every other number in a business plan for nursery settings. Baby rooms need one adult for every three children and the most floor space per child, but they also attract the highest hourly funding rate. Rooms for 3 to 5-year-olds need fewer staff per child, but funded rates for that age group are the lowest. Look at local demand for each age band, the space in your building and the funding rates, then set a mix you can staff reliably. A mix that looks profitable on paper fails if you can’t recruit enough qualified staff for the baby room.
Where Nursery Income Comes From
Since September 2025, eligible working parents in England can get 30 hours of funded childcare a week (over 38 weeks of the year) for children from 9 months old until they start school. All 3 and 4-year-olds get 15 hours, and some 2-year-olds from families receiving extra support also qualify. For many nurseries, funded hours are now most of the income.
The government pays each local authority a set hourly rate for each age group, and the council passes at least 97% of it on to providers in 2026/27, according to the government’s funding explainer. Average 2026/27 rates reported by the National Day Nurseries Association are:
| Age group | Average hourly funding rate 2026/27 |
|---|---|
| Under 2s | £12.04 |
| 2-year-olds | £8.90 |
| 3 and 4-year-olds | £6.42 |
Your own council’s rate may be higher or lower, so use the local figure, not the average. On top of funded hours, most nurseries earn income from:
- Paid hours beyond the entitlement, at your own fee rate.
- Additional charges for meals, nappies or trips, which must be optional for funded hours under the council’s rules.
- Stretched funding arrangements, where funded hours are spread across more weeks of the year.
In your plan, show the expected split between funded and paid hours for each age group, because that split, more than your headline fees, decides how much you actually earn per child.
The Financial Model in a Business Plan for Nursery
The heart of a business plan for nursery is a model that links occupancy to income and staffing. The example below is illustrative only. Change every figure to match your own building, council rate and local wages.
Assumptions: open 51 weeks a year, 50 hours a week. Places are 9 for under-2s, 10 for 2-year-olds and 21 for 3–5s. Average income per child per hour, blending funded rates, paid hours and charges, is £11, £9 and £7. Practitioners earn £26,000, with a manager (£38,000), deputy (£30,000) and cook (£22,000). Employer NI is 15% above £5,000, pension is 3%, and the £10,500 Employment Allowance is claimed. Staffing is set by the ratios with 60% extra cover for 50 opening hours, breaks, holidays and training. Rent is £70,000 and other running costs £60,000, plus food at £2 per child per day.
| Occupancy | Income | Practitioners (FTE) | Total costs | Profit before tax |
|---|---|---|---|---|
| 60% | £514,080 | 10 | £534,990 | −£20,910 |
| 70% | £599,760 | 12 | £596,890 | £2,870 |
| 80% | £685,440 | 13 | £628,860 | £56,580 |
| 90% | £771,120 | 13 | £630,900 | £140,220 |
In this model, the nursery only breaks even at about 70% occupancy. At 80%, staff costs are around 70% of income and profit is just over 8% of income.
Notice how staffing rises in steps. Filling one more under-2 place can mean employing another person, so profit doesn’t grow smoothly with occupancy. That’s exactly what a lender wants you to understand.
A simple three-year forecast
Lenders usually want to see at least three years of figures. Using the same illustrative model, and ignoring inflation for simplicity, a nursery that averages 60% occupancy in year one, 80% in year two and 85% in year three would show:
| Year | Average occupancy | Profit before tax |
|---|---|---|
| 1 | 60% | −£20,910 |
| 2 | 80% | £56,580 |
| 3 | 85% | £98,400 |
A first-year loss like this is common, which is why the cash flow and the funding request need to cover it.
Start-up costs and cash flow
Before the first child arrives, you’ll typically pay for fit-out, furniture and equipment, a rent deposit, legal fees, registration, DBS checks and recruitment. Your cash flow forecast should also cover the months when you’re paying full staff costs but occupancy is still building. Many plans include working capital to cover at least the first few months of costs.
Sensitivity tests lenders like to see
- Occupancy 10 percentage points lower than planned.
- A National Living Wage rise larger than your funding increase.
- Your council’s funding rate frozen for a year.
- A key member of staff leaving, so you need agency cover.
Tax Points to Include in Your Plan
- VAT: under HMRC’s welfare services notice, childcare from a state-regulated provider such as an Ofsted-registered nursery is exempt. You don’t charge VAT, but you also can’t reclaim the VAT on rent, equipment or food, so budget your costs including VAT.
- Structure: as a sole trader, profit is taxed through Self Assessment with Income Tax and Class 4 National Insurance. A limited company pays Corporation Tax at 19% on profits up to £50,000, rising to 25% above £250,000. Some nurseries run as charities or community interest companies.
- Payroll: employer National Insurance is 15% on pay above £5,000 a year. Most employers can reduce the bill with the Employment Allowance of up to £10,500. Auto-enrolment pension contributions also apply. The National Living Wage is £12.71 an hour from April 2026.
- Business rates: in England, small premises may qualify for small business rate relief. Scotland has its own reliefs, so check with your local council.
For which running costs count as allowable expenses for a sole trader, see our guide to self-employed business expenses.
Funding Your Nursery
New nurseries are usually funded through a mix of savings, bank lending and sometimes investors. The government-backed Start Up Loans scheme offers personal loans of £500 to £25,000 at a fixed 7.5% for one to five years, and it asks for a business plan and cash flow forecast. Banks may also offer asset finance for equipment. Some councils occasionally run capital grants to create new early years places, so check with your local authority’s early years team.
Whatever the source, the funder will read your business plan for nursery numbers first. Make sure the forecast, cash flow and break-even figures all tie together.
Keep the plan up to date
A business plan for nursery owners isn’t only for the bank. Compare actual occupancy, staff costs and income against the forecast each month. When funding rates or the National Living Wage change each April, update the model and check your fees and staffing still work.
Common Mistakes
| Mistake | Why it causes problems |
|---|---|
| Assuming full occupancy from day one | Most new settings fill gradually, and staff costs start immediately |
| Using another council’s funding rate | Rates vary between areas and change each year |
| Counting only ratio staff | Breaks, holidays, training and long opening hours need extra cover |
| Forgetting VAT on costs | Exempt businesses can’t reclaim it, so costs are higher than they look |
| No cash buffer | Funding payment dates may not match when your bills are due |
| No sensitivity analysis | Lenders want to see that you’ve planned for things going wrong |
Business Plan for Nursery FAQs
How do I write a business plan for a nursery?
Cover your setting, local demand, services and fees, premises, Ofsted registration, staffing, marketing, finances and risks. Build the financial section around occupancy, funded hours income and ratio-based staff costs.
Is there a free nursery business plan template?
Yes. Start Up Loans offers free business plan and cash flow templates, and some training providers and councils publish nursery-specific ones. Adapt any template to your local figures.
How much does it cost to open a nursery in the UK?
It depends on the building, size and fit-out. Plan for premises costs, equipment, registration, recruitment and enough working capital to cover several months while places fill.
What occupancy does a nursery need to break even?
It varies, but in our illustrative 40-place model, break-even was around 70% occupancy. Your figure depends on local funding rates, wages and rent.
How do funded hours affect nursery income?
Funded hours are paid at an hourly rate set by your council, which may be lower than your own fees. Your income mix of funded and paid hours largely decides your margins.
Do nurseries charge VAT?
Childcare from an Ofsted-registered provider is normally VAT-exempt. That means you don’t charge VAT, but you can’t reclaim VAT on your own costs either.
Should a nursery be a limited company?
Many are, for limited liability and Corporation Tax rates, but it depends on your plans and profit. Some run as sole traders, partnerships, charities or community interest companies.
How long does Ofsted registration take?
Allow around three months from submitting a complete application. Build this into your opening date and your cash flow.
Final Verdict
A strong business plan for nursery owners is honest about the numbers. Start from the legal ratios and your council’s funding rates, build costs around real staffing levels, and show the occupancy you need to break even, along with what happens if you miss it. Add the VAT and payroll tax points, and a lender will see that you understand the business as well as the childcare. For another worked sector example, Tax Return Accountants has a guide to a business plan for a pub, and our guide to the best business to start in the UK compares business types more broadly.
- Get your council’s 2026/27 funding rates and its childcare sufficiency report.
- Work out staffing from the ratios for your planned age mix.
- Build the occupancy model and find your break-even point.
- Run at least three sensitivity tests before you approach a lender.
- Ofsted fees, funding rules and VAT treatment come from GOV.UK, checked in November 2026.
- The ratios are from the EYFS statutory framework. The average funding rates are as reported by the National Day Nurseries Association.
- The financial model was calculated in code and is clearly marked as illustrative.
- Last reviewed: November 2026.
- GOV.UK – Write a business plan
- GOV.UK – Registration fees for childminders and childcare providers
- GOV.UK – Daycare (childcare on non-domestic premises): registration
- GOV.UK – Early years foundation stage statutory framework
- GOV.UK – Early years funding rates 2026 to 2027: easy explainer
- NDNA – Funding rates announced for 2026-27
- HMRC – Welfare services and goods (VAT Notice 701/2)
- GOV.UK – National Minimum Wage and National Living Wage rates
- GOV.UK – Employment Allowance
- GOV.UK – Small business rate relief
- Start Up Loans – Start Up Loans