Preparing for April Cost Increases (without panicking)
Updated: 3 days ago
With the Budget looming and speculation continuing about what the Chancellor may announce, many settings are understandably feeling anxious about the months ahead. Whether concerns centre around wage increases, National Insurance contributions, inflationary pressures or wider operational costs, the uncertainty alone can be enough to raise stress levels.
The media headlines will no doubt focus on the scale of the increases and understandably many providers (and myself by the way) begin to worry about whether their setting can absorb the additional costs on already tight margins.
However, before making rushed decisions or assuming the worst, it's important to take a step back.
Uncertainty does not automatically mean crisis.
While it makes sense to prepare for potential financial pressures, reacting out of fear rather than fact can often lead to poor decisions. Now is the time for measured planning, not panic.
Start with facts, not fear
When costs increase, it's natural to focus immediately on the worst-case scenario. However, one of the most important things you can do is gather accurate information before taking action.
Ask yourself the following:
What are our anticipated increases in staffing costs?
What assumptions are we making?
What funding rates have been confirmed?
How will the changes affect our cash flow?
What are the likely financial implications over the next 12 months?
Many settings discover that while cost increases are significant, they are often more manageable one they are broken down into actual figures rather than being viewed as one large unknown.
Any annual increase is always going to be a challenge. However, breaking it down and understanding what it equates to either per week or per month allows you to focus on identifying solutions rather than becoming overwhelmed by the overall headline figure.
Review your numbers before making cuts
One common reaction to rising costs that I see frequently is to immediately look for areas to reduce spending. And over the years, with minimal rises to the funded hourly rate, many of you are already operating on the bare bones whilst trying to maintain quality.
So while cost control is important, any further cuts should always be informed by evidence.
Before reducing staffing levels, training budgets, resources or support services, review:
Occupancy and attendance patterns
Fee structures
Staff deployment
Session patterns
Funding claim accuracy
Consumable and resource costs
Administrative processes
Additional services and chargeable extras
Use of reserves
Sometimes the issue is not expenditure alone. It may be a combination of income opportunities being missed or pricing structures that have not been reviewed.
The goal should be to improve sustainability, not simply reduce spending.
Recognise the challenge of funded provision
For many charity-managed settings increasing fees is just not a relalistic solution. Unlike providers with a significant proportion of privately paying families, many sessional pre-schools rely heavily or solely from the Government early years entitlements. With the rates paid for funded places dictated by local authorities providers have no influence over the amount received.
This creates a difficult situation. Costs can rise quickly, while income remains largely fixed until funding rates are reviewed.
As a result, financial sustainability often depends less on increasing income and more on understanding costs, maximising occupancy, ensuring funding claims are accurate and making strategic operational decisions.
Understand the true cost of delivery
One of the most valuable exercises you can undertake is calculating the actual cost of delivering an hour of childcare.
Many settings are surprised to discover the gap between their hourly delivery costs, the funding received and any additional income generated through voluntary charges or purchased extras where appropriate.
To calculate this, start by working out your annual operating costs including:
Staff salaries and on-costs
Employer National Insurance contributions
Pension contributions
Training costs
Rent or premises costs
Utilities
Insurance
Resources, consumables, food and drink
Administration and professional fees
Equipment and maintenance.
Once you have your total annual expenditure, calculate the number of hours you deliver each year.
Example:
Annual expenditure: £157,000
Open: 6 hours per day / five days per week / 38 weeks per year
Capacity: max 24 children
Total childcare hours available each year:
24 children x 6 hours x 5 days x 38 weeks = 27,360 hours
Dividing annual expenditure by those hours gives a delivery cost of around £5.74 per childcare hour.
If the local authority funding rate is lower than this figure, trustees can begin to see the challenge facing many settings. Even a difference of 50p per hour can create a significant funding gap across an entire year. Understanding these figures enables trustees to have informed discussions about sustainability, reserves, occupancy, fundraising and future planning.
Of course, few settings operate at full occupancy every session of every day. Once actual attendance levels are factored in, the true cost per occupied hour may be considerably higher. This is why occupancy remains one of the most important financial indicators for trustees and managers to monitor.
For non-funded children
In some cases, providers still price their services based on what they believe families can afford rather than what it actually costs to deliver those services.
While affordability is an important consideration, especially in charity-managed settings trustees also have a resposnibility to ensure their organisation remains financially viable.
A detailed cost analysis can help identify:
The true cost per child
The true cost per session
Staffing cost percentages
Occupancy break-even points
Areas where services may be operating at a loss.
Many settings avoid discussions about fee increases because they are worried about how families may respond. However, transparency is always preferable to sudden, significant increase implemented at the last minute.
Where fee increases are necessary:
Communicate clearly
Provide reasonable notice
Explain the reasons honestly
Focus on sustainability and quality
Ensure communications are respectful and empathetic
We're all experiencing financial pressures and recognising this within communications will help to maintain positive relationships with families.
Always ensure terms and conditions, contracts and fee arrangements are reviewed appropriately and comply with relevant consumer and contract law requirements.
Useful documents:
Review staffing strategically
Staffing is typically the largest cost within your early years provision. This does not mean staffing should automatically be reduced whenever costs increase. Instead, consider whether:
Staffing deployment is effective
Session patterns remain appropriate
Rotas reflect attendance patterns
Administration tasks can be streamlined
Staff skills are being utilised effectively
Any proposed changes to contracts, hours or terms and conditions should follow necessary employment procedures and legal requirements. Always seek professional HR or legal advice before making changes.
Your team remains your greatest asset. Long-term sustainability depends upon retaining skilled, dedicated and committed staff wherever possible.
Talk to your trustees early
Charity trustees have a legal responsibility to act in the best interests of their charity and support its long-term sustainability. Cost increases should therefore be considered a governance issue as well as an opertaional one.
Trustees should be investigating and discussing:
Cost increases and forecasting appropriately
Projected funding income
Reserve levels
Cash flow projections
Risks and opportunities
Occupancy trends
Strategic options available
A well informed trustee board is better placed to make decisions that support both the charity's purpose and its long term financial health.
The same principle applies to owners and directors. Early conversations create more options.
Focus on what you can control
No provider can control national wage rates, taxation changes, inflation or government policy. What you can do is control how you respond.
Focus your time and energy on:
Accurate forecasting
Budget monitoring
Occupancy growth
Effective staffing deployment
Income generation opportunities (grants, donations and fundraising)
Strategic planning
The settings that navigate financial challenges most successfully are rarely those without difficulties. They are usually the ones that understand their numbers, review frequently and make timely decisions.
Useful document: Three year business plan
Remember - Sustainability supports quality
Financial conversations can sometimes feel uncomfortable in early years because the sector is built on education, care and community. However, financial sustainability and quality provision are not competing priorities.
A financially healthy setting is better positioned to invest in staff, maintain high quality environments, support children and families, plan for the future and deliver long term stability.
Good financial management is not all about profit. It is about ensuring that your provision reamins available for the children and communities who rely upon it.
Final thoughts
For many early years settings April cost increases are a challenge, theres no doubt about that.
But panic does not solve financial pressures. Good governance, robust budgeting, clear forecasting and informed decision making do.
Take time to understand the figures, review your position objectively and focus on actions that are within your control. Financial pressures are easier to manage when decisions are based on evidence rather than anxiety.
The most resilient settings are not necessarily those with the largest reserves or highest income. They are the ones that regularly review their financial position, communicate openly and plan ahead.
By focussing on the facts rather than the budget headlines, settings can approach April with greater confidence and a clearer plan for the future.
Need help with business planning? Book a discovery call to chat about your situation and how I can help
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