This page outlines key tests to determine if your organisation might have sustainability problems before they become serious. When an organisation submits an application for Sustainability Grant funding or contacts the Early Years Finance section to discuss sustainability issues, we ask for information on five key areas. In priority order these are:
| 1 |
Occupancy |
To establish if an organisation is filling its number of OFSTED-registered places |
| 2 |
Staffing |
To establish if an organisation is adhering to OFSTED staffing ratios |
| 3 |
Fees |
To establish if fees charged by an organisation are at least equal to the hourly rate paid via the Nursery Education Grant |
| 4 |
Bad debts |
To establish if an organisation is collecting all income owed from all sources (particularly fees from parents) |
| 5 |
Rent |
To establish if an organisation is using the cheapest appropriate accommodation available in the area |
The following test documents are available for an organisation to download and use from the 'Read more' section on this page.
Occupancy rate or percentage
The key area in establishing if an organisation has or will have sustainability problems is occupancy.
The test we have developed to determine if an organisation has sufficient numbers of children to ensure both its short- and medium-term sustainability is the occupancy rate or percentage. An occupancy rate can be calculated per day, per week or per month and the steps taken to calculate this figure are the same. The occupancy rate shown in the example is the rate per month.
To view an example see the 'Read more' section.
A popular trap - when we ask an organisation to use the number of places shown on its OFSTED registration certificate to calculate its occupancy rate it often provokes the following response:
| "Although we are OFSTED-registered for 24 children per day we chose to offer 20 places". |
An organisation that takes this approach will reduce its potential occupancy rate from 100% to 83% (20 divided by 24 times 100) before it begins to recruit children.
One of the outcomes of the above example is that it masks the true occupancy position of an organisation. 20 children may attend on a full-time basis, the organisation may think it is fully occupied but it is actually running at an occupancy rate of 83%. Do not fall into this trap.
If you wish to calculate the occupancy rate at your organisation use the links in the 'Read more' section on this page with which you can calculate daily, weekly or monthly occupancy rates in either the manual version or the excel version.
Staffing
The second key area in establishing if an organisation has or will have sustainability problems is staffing. We have developed two tests to determine if an organisation is overstaffed and whether it is over-reliant on parent volunteers.
An example of how we check if an organisation is overstaffed is shown below in the 'Read more' section on this page.
Reliance on parent volunteers - this is a very high-risk strategy and a reliable indicator that an organisation is experiencing sustainability issues. An example of how we check if an organisation is reliant on parent volunteers is shown in the 'Read more' section on this page.
The questions this strategy raises are:
- Can the organisation no longer afford to employ staff?
- Is the organisation experiencing difficulty in recruiting and retaining staff?
If the answer to both these questions is yes an organisation has severe short-term sustainability issues. If you wish to compare the staffing levels at your organisation with the OFSTED staff-to-children ratios see the 'Read more' section to access either a blank proforma on which you can manually compare this information rate or an excel spreadsheet which contains formulae which perform the calculations for you.
Fees
The third key area in establishing if an organisation has or will have sustainability problems is the fee it charges.
The test we have developed to determine if an organisation is potentially undercharging is to compare the actual hourly rate charged with the average hourly rate for the sector in 2003 (the latest figure available). An example of how to compare the hourly rate an organisation charges with the average hourly rate for the sector is shown in the 'Read more' section on this page.
Average hourly rate charged per sector in South Gloucestershire settings (2003):
- After-school club: £2.18 per hour
- Full-day care: £2.42 per hour
- Sessional day care: £1.84 per hour
It should be noted that the average hourly rate for providers that offer full and sessional care is significantly below the Nursery Education Grant hourly rate of £3.24p (£8.10p divided by 2.5hrs). This rate provides an indication of the hourly rate central government determines it costs to effectively fund a childcare organisation.
Bad debts
The fourth key area in establishing if an organisation has or will have sustainability problems is the value of unpaid fees or bad debts it is currently carrying.
As a 'rule of thumb' the value of unpaid fees should be no more than 5% of total fee income billed.
To view an example of bad debts see the 'Read more' section' on this page. You will also be able to calculate the bad debt ratio at your organisation by accessing a proforma spreadsheet containing formulae to perform the calculations for you.
Rent
The fifth key area in establishing if an organisation has or will have sustainability problems regards the amount of rent it is paying for its accommodation.
This is a difficult area in which to effect change as an organisation often has little choice but to use the premises in which it is currently resident.
However, we have recently received funding applications from a number of organisations that had either voluntarily moved into premises which charged a higher rent or had experienced a rent increase shortly after moving into new premises.
If you are moving into new premises we advise that you:
- Ask the landlord to provide you with a written statement containing your rent for the next 12 months, the dates on which the organisation will be billed (monthly, quarterly etc.) and the date on which the rent is next reviewed
- Taking this action will enable you to budget for rent in the short term and provide an indication of when a potential rent increase will take place