Financial planning and funding sources

For a childcare provision to function well, it is vital that its finances are appropriately planned and managed. A structured financial system helps day-to-day activities to run more smoothly, and up-to-date and accurate accounting records can support the planning and decision-making process. In short, sound financial management helps to keep your provision more sustainable.

There are a number of costs involved in running an early years provision. These range from bills for premises and utilities to staff payroll and equipment. You must be confident when budgeting that the income you receive from fees and government funding will be enough to cover all your outgoings, and will allow you to provide a high quality service to children and families.

A business plan will help you to outline your expected activities for the year ahead, and can be used to plan for the future operation and development of your services. This is also a useful tool when applying for funding, as it explains to potential funders how their money will benefit the provision.

Alliance publication Financial Management will guide you in managing your finances on an ongoing basis, and contains a model business plan for early years providers. You may also find our Accounts Record useful for recording your annual finances.

What government funding is available for early years education?

Co-ordinated by local authorities, early years education funding provides free part time childcare places for all three and four-year-olds, and some two-year-olds. Two-year-olds will qualify if they or their families receive certain benefits or they are looked after by their local authority.

Providers can register with their local authority to claim the funding, which currently entitles eligible children to a free place consisting of 570 hours a year, over a minimum of 38 weeks a year. In most settings, the free places are offered as 15 hours a week during the school term, either as three hours of childcare over five days, or five hours over three days. Parents cannot be charged for the funded sessions, however the cost of any additional sessions, plus consumable items such as drinks, meals and nappies, will be covered by parents.

In September 2017, the government will extend the free childcare entitlement for three and four-year-olds to 30 hours a week. For more information on the new scheme and an explanation of the governement's new approach to early years funding for three- and four-year-olds, take a look at our Guide to Early Years Funding and Delivery Changes.

For two-year-olds, local authorities will generally only fund childcare provision that is rated as good or outstanding by Ofsted, or is newly established and has not yet received a full Ofsted inspection. However, if there are insufficient places to meet demand in the area, they may also accept applications from providers rated as requires improvement

What is the Early Years Pupil Premium?

The Early Years Pupil Premium (EYPP) provides additional funding for disadvantaged three- and four-year-olds. Early years providers can claim an extra 53p per hour for three- and four-year-olds whose families are in receipt of eligible benefits, or who are in local authority care. A model form and letter to help providers identify which children are eligible for the Early Years Pupil Premium can be found hereUnder 5 magazine recently explained where to start with EYPP funding.

Further information on government funding is available here, or by contacting your local authority, who will also advise you about other public grants and funds that you may be able to access.

The Tax-free Childcare Scheme

Due to be launched in April 2017 and rolled out over the course of the year, the Tax-Free Childcare Scheme aims to make childcare more affordable for working parents. Parents will be invited to set up an online account to pay for childcare with a registered provider, and the government will contribute £2 for every £8 parents spend. The scheme will give eligible families a maximum of £2,000 per child per year, or £4,000 for children with disabilities.

Early years providers will need to be registered with Ofsted or another regulator and sign up to the scheme with HMRC in order to receive payments from parents. They will receive a user ID by letter and will also need to supply their bank account details, Unique Taxpayer Reference number and postcode or National Insurance number.

Charitable settings which are not registered companies do not have a Unique Tax Reference number and should contact the HMRC childcare service helpline on 0300 123 4097 for more information on how to sign up. 

Did you know?

The Alliance has helped to develop a user-friendly nursery management software package called EY-Essential. This affordable system supports daily management tasks such as bookings, ratios, diary keeping, staff rotas and invoicing. Try before you buy: for full details of EY-Essential and an interactive demonstration, register your details.

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