Watching the pennies as well as the kids? Gary Croxon gives some invaluable tips for managing your budget during this difficult time…
If you’re staring in despair at your monthly balance sheet, wondering how to add value while cutting costs, you’re not alone.
In the current financial climate, we’re all looking at where and how we can save money. The Early Years sector is no exception.
Rising costs, coupled with years of government underfunding, have left settings struggling. Yet, providing high-quality education and care to young children remains vital.
This means it’s imperative that you know your setting’s current financial position and have a budget forecast. This will allow your business to continue to provide these crucial services.
Being au fait with your finances allows you to reflect on your income and expenditure. That way, you can make any necessary changes where identified. With money on our minds, here are some tips and advice to help you build a realistic and sustainable budget…
Firstly, let’s look at income. If you offer early entitlement places, factor in what your new early entitlement funding rate will be. The Department for Education (DfE) confirmed the hourly funding rates that all local authorities in England will receive for 2023/24. This was alongside increases to Early Years Pupil Premium and Disability Access Funding rates.
Next let’s consider fees. Fee income is something you have more control over, which makes it easier to factor into your budgeting.
Understandably, with the cost-of-living crisis, you may be reluctant to increase your fees. However, if an annual rise in fees is normal for your setting, families are likely to be prepared for this increase.
Even if you haven’t increased fees for a while, you may still want to consider a reasonable uplift to ensure you are able to cover the rising costs within your setting.
You may also wish to base your fee structure on children’s ages and charge more where staff ratios are higher. Whatever you decide, if you’re planning to increase your fees, it’s always important to give parents and carers as much notice as possible.
And so on to expenditure. Firstly. ensure that you are adhering to legal wage and holiday pay requirements. Along with new funding rates, April 2023 saw a 9.7% increase in the national living wage for employees aged 23 and over. There was also a 10.9% rise in the national minimum wage for 21 and 22-year-olds.
It’s vital to ensure that you’re continuing to meet statutory wage obligations. This may sound simple enough, but it’s easier than you might think to accidentally pay your employees less than the legal minimum.
For example, you may overlook hours accrued during training or overtime, or deducting pay for expenses or uniform. More information, including advice on how to avoid and remedy this as well as several useful examples, can be found by watching our webinar. This was recorded in partnership with HMRC.
It’s also important to check that you’re paying the correct holiday pay for part-year and term-time employees. This can also have a knock-on impact on setting budgets.
Last year, a Supreme Court decision (Harpur Trust v Brazel) confirmed that annual leave for any employee is 5.6 weeks regardless of the number of weeks they work in a year. This can result in part-year employees receiving a higher proportion of pay compared to full-time workers.
A current government consultation on this may well change the rules in the near future. But whatever the decision, it’s vital that you understand and are aware of these requirements so that they can be factored into your budget.
Remember, if you are an Alliance member with queries about legal pay requirements, don’t forget that you can take advantage of Law-Call, a 24/7 service that offers expert advice on HR, employment and legal matters.
As well as wages, it’s crucial to have a good understanding of your non-pay-related costs. There is a whole range of other costs associated with operating an Early Years setting. These tend to fall into three categories: fixed, variable and contingency:
Fixed costs are those that tend to remain the same, or at similar levels, over the long term. This includes things such as rent, service charges and business rates.
Variable costs can be more challenging to predict over the budgeting period. This could include costs like non-fixed-rate utilities, consumables and staffing costs.
Contingency costs are unforeseen or unplanned expenditure. While we endeavour to budget based on our knowledge of our provision, you should always plan for the unplannable.
Categorising your expenditure in this way will help ensure your budget is as accurate as possible.
It’s vital that you keep your accounts and cashbooks up to date with the setting’s income and expenditure. You also need to review them regularly.
This means monitoring surplus and/or deficit variances, not just by tracking actual expenditure, but also against your budget.
Where there are variances, it’s important to reflect on these and, if necessary, decide what action can be taken to bring your setting back to your break-even point.
Don’t ignore deficit variances, ie extra bills. It’s vital that you create an action plan detailing how you’ll address this and set clear and achievable timescales.
It can be also helpful to view budgeting as an opportune time to look at your expenditure and see if you can make any savings.
Even small changes can make a difference. If your broadband or energy contract is up for renewal, rather than simply letting it automatically renew, take the time to research if there is a cheaper deal available elsewhere. Alternatively, contact your current supplier to see if there is any wiggle room on your tariff.
There’s no doubt that the financial pressures facing Early Years settings are greater than ever, but having a strong budget in place will not only help you weather the current cost-of-living crisis, but will also go a long way to futureproofing your business for the years to come.
Gary Croxon is the Business Manager of the Early Years Alliance. The Alliance’s Business Blocks suite of resources supports Early Years settings and services to tackle financial pressures head-on, by providing a range of comprehensive expert support to help providers identify and address any gaps in their business approach. These resources include an interactive Budget Toolkit and a one-to-one consultation to support providers to analyse their forecast income and expenditure, available for as little as £55.