How to open a nursery: registration, costs and funding

This guide is for early years practitioners, managers and investors planning to open a new day nursery or pre-school in England, whether in converted premises, a purpose-built unit or a franchise model. It covers the decisions that shape the business, the regulatory steps, the realistic costs and how new settings are funded. Smart Funding Solutions is a broker, not a lender: we arrange business funding from around £10,000 to £500,000+, with larger facilities available in suitable cases, and our nursery business finance page covers borrowing once a setting is trading.

01Test the local market first

A nursery's finances are decided largely by where it is. Before looking at premises, find out:

• Demand by age group. Baby and toddler places are typically the hardest to find since funded hours were extended to working parents of younger children. Your local authority's childcare sufficiency assessment, which councils must publish, shows where gaps are.
• The funding rate. What the council pays per funded hour for each age band, and how often it pays. In many areas this decides whether the model works at all.
• What local parents pay for privately funded hours and extras, and the opening hours they need. Commuter areas need long days; rural settings may fill only school-day sessions.
• Competition. Nearby nurseries, childminders and school-based provision, their inspection outcomes and waiting lists.

02Premises, space and planning

The EYFS statutory framework sets minimum indoor space per child, with more space needed for babies and two-year-olds than for older children, and requires access to outdoor play every day. Your registered capacity, and so your income, flows directly from usable floor area once kitchens, toilets, nappy-changing, sleep rooms, staff areas and storage are excluded. Measure carefully before agreeing a price or rent.

Day nurseries fall within Use Class E, so former shops, offices and some other commercial units can often be used without a change of use, though works may still need planning permission and building regulations approval. Converted houses and church halls are common, but check parking, drop-off arrangements and neighbours early; they are frequent reasons for objection. If you plan to buy rather than lease, our guide to buying business premises covers owner-occupier purchases, and conversion works can be funded through fit-out and refurbishment finance.

03Staffing, ratios and qualifications

Staff are the largest cost and the main constraint on how many children you can take. The EYFS sets adult to child ratios that tighten for younger children: in group settings in England, one adult to three children under two, one to five for two-year-olds, and one to eight for children aged three and over, or one to thirteen in some circumstances where a suitably qualified teacher leads. The manager must hold an approved level 3 qualification and have relevant experience, and at least half of other staff must hold an approved level 2 qualification. Recruiting qualified practitioners is often harder than finding premises, so many founders secure their manager before committing to a building.

04Registering with Ofsted and the local authority

1. Set up the provider, usually a limited company, and appoint a nominated individual who will be Ofsted's point of contact.
2. Complete suitability checks, including enhanced DBS checks for the people connected with the registration.
3. Apply for registration on the Early Years Register for childcare on non-domestic premises, using Ofsted's process to apply to register your nursery or other daycare organisation. Ofsted will usually visit and interview the nominated individual or manager.
4. Sign the local authority provider agreement so you can claim funded hours, and confirm the council's payment schedule and headcount dates.
5. Set up for Tax-Free Childcare so parents can pay part of their fees through the government scheme.

You cannot open, or take fees for childcare, until registration is granted. Build in a margin of several months between completing the fit-out and opening, and do not commit to a fixed opening date with parents too early.

05What it costs to open

Start-up spending usually falls into four areas: premises (deposit, legal fees or purchase costs), fit-out (toilets and changing facilities, kitchen, flooring, fire safety, secure entry, outdoor surfacing and canopies), equipment and resources (furniture, cots, toys, IT and a parent communication app), and pre-opening running costs (manager's salary, recruitment, training, insurance, marketing and rent). On top of that sits the loss in the first months, because a new setting rarely opens full.

Illustration. Suppose a hypothetical 50-place nursery opens with 15 children and adds around five a month. Staff for the open rooms must be paid from day one, so it might run at a loss for most of its first year, even if the business plan shows a healthy profit once full. Funding that covers the fit-out but not the fill-up is the most common reason new settings run short of cash.

06Funding a new nursery

Source	Best for	Trade-off
Founders' capital	Pre-opening costs and the lender's expected contribution	Your own money at risk first
Start-up loans	Founders without trading history; see start up business loans	Limited amounts; personal liability
Asset finance	Kitchen equipment, IT and minibuses	Little value for soft items such as furniture and toys
Secured lending	Buying the premises or borrowing against other property	Property at risk if repayments are missed
Franchise route	Founders who want a tested brand and systems; see franchise loans	Ongoing fees and less control

Some councils have run capital grants to create new places, particularly for younger children; check before borrowing for the same work. Buying an existing setting avoids the fill-up period altogether, at the price of paying for goodwill; our page on buying or expanding a nursery group covers that route.

07What lenders look for in a new nursery

A new setting has no trading record, so lenders lean on the founders and the plan:

• Income mix: how much revenue will come from government-funded hours at the council's rate and how much from private fees and extras, since the funded rate may not cover cost for every age group.
• Occupancy build-up: a realistic month-by-month fill rate by room, and the cash needed to carry the setting until it breaks even.
• Staffing: whether the manager and room leaders are already identified, qualified and enough to meet ratios as numbers grow.
• Registration timing: how far Ofsted registration has progressed, because no fees flow until it is granted.
• Premises: lease length, planning use and the fit-out cost, and what the building would be worth if the nursery did not succeed.
• Founders' stake: the cash and early years experience the founders bring.

08Documents a lender will want

09Risks to plan for

• Funding rates below cost. If most children attend on funded hours and the council's rate does not cover your cost per hour, growth makes losses bigger, not smaller.
• Staff shortages can leave a fitted room closed. Recruit ahead of the build.
• Registration timing pushes back income while costs continue.
• The September dip when older children leave for school, which can catch a young setting before it has built a waiting list.
• Personal guarantees on start-up borrowing put your own assets behind the business.

10How we help new settings