Rising salaries are pushing settings into the red
Pressure on sector finances continues to increase with pay rates for managers rising by an average of 4% in April 2019 and by 3% for early years practitioners.
Managing payroll costs is one of the most challenging aspects of running a nursery. The mix of staff and shift patterns needs to achieve three important goals: meet the individual needs of children, attract and retain staff and deliver a surplus for the business.
One measure commonly used to monitor the financial health of a setting is the wage to sales ratio. Put simply, this is total payroll costs as a percentage of total income, calculated as:
Total payroll cost / total sales x 100.
Research with Ceeda's AboutEY research panel in spring 2019 showed the average sector wage to sales ratio was high at 70.1%. Settings reporting a profit in their most recent financial reporting period had an average wage to sales ratio of 64.9%, rising to 73.5% in settings breaking even, and 79.2% in settings reporting a loss.
With almost one in three settings (29%) reporting a loss in the last financial year, and an estimated funding deficit of £662 million forecast for 2019/2020, the future looks challenging indeed.