Written by Samina · Published: November 2026 · Last reviewed: November 2026 · Applies to 2026/27
MerinTaxReturn is an information website. It does not prepare or file tax returns and does not give personal tax, business or financial advice.

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.

Quick Answer
A business plan for nursery should describe your setting, the families you’ll serve and how you’ll meet Ofsted’s rules. Above all, it must show how the numbers work: income from funded hours and paid sessions, staff costs at the legal ratios, rent and running costs, and the occupancy level you need to break even.
Key takeaways
  • 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 summaryYour setting, places, ages, opening hours and funding askA clear, short pitch they can repeat to colleagues
The settingDay nursery, pre-school or sessional care; ownership and structureThat you’ve chosen a model that fits the building and the market
Local marketLocal births, waiting lists, competitors’ fees and the council’s childcare sufficiency reportEvidence of demand, not assumptions
Services and feesFunded hours offer, paid hours, meals and consumables chargesPrices that match local rates and funding rules
Premises and registrationLease, fit-out, outdoor space, Ofsted timelineRealistic opening dates
Staffing and managementStructure, qualifications, recruitment and retentionThat you can meet ratios from day one
Marketing and enrolmentHow you’ll fill places, and how fastA believable ramp-up
Financial planStart-up costs, three-year forecast, cash flow, break-evenNumbers that tie together
Risks and sensitivityLow occupancy, staffing gaps, funding changesThat 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 21 adult to 3 children3.5 m²
2-year-olds1 to 52.5 m²
3 and over, with a qualified teacher working directly with the children1 to 132.3 m²
3 and over, without one1 to 82.3 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.

Example: a 40-place day nursery (illustrative)

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%£514,08010£534,990−£20,910
70%£599,76012£596,890£2,870
80%£685,44013£628,860£56,580
90%£771,12013£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
160%−£20,910
280%£56,580
385%£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 oneMost new settings fill gradually, and staff costs start immediately
Using another council’s funding rateRates vary between areas and change each year
Counting only ratio staffBreaks, holidays, training and long opening hours need extra cover
Forgetting VAT on costsExempt businesses can’t reclaim it, so costs are higher than they look
No cash bufferFunding payment dates may not match when your bills are due
No sensitivity analysisLenders 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.

Your next steps
  1. Get your council’s 2026/27 funding rates and its childcare sufficiency report.
  2. Work out staffing from the ratios for your planned age mix.
  3. Build the occupancy model and find your break-even point.
  4. Run at least three sensitivity tests before you approach a lender.
For advice on your own situation, speak to a qualified accountant or business adviser.
Why trust this guide
  • 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.
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Written by
Samina
Writer, MerinTaxReturn
Samina writes plain-English UK tax guides for MerinTaxReturn. Each guide is checked against current GOV.UK and HMRC guidance before it’s published.
How we checked this guide: the Ofsted daycare fees come from GOV.UK’s registration fees page. The funding entitlements and 97% pass-through come from the government’s 2026/27 funding explainer, and the average hourly rates from the National Day Nurseries Association. The ratios come from the EYFS framework, the VAT treatment from HMRC Notice 701/2, and the National Living Wage and Employment Allowance figures from GOV.UK. The model was built in code with illustrative inputs. MerinTaxReturn is an information website. It does not prepare or file tax returns and does not give personal tax, business or financial advice. This article is general information only. We review this guide every 12 months, or sooner if the rules change. Last reviewed: November 2026