The impact of National Insurance changes on nurseries: what will it mean for the sector?

It’s no secret that nurseries across the UK are feeling the squeeze. Rising costs, workforce challenges, and now changes to National Insurance (NI) rates are piling on the pressure. For some, it’s becoming a question of survival.

But what exactly is happening, and what does it mean for nursery owners, parents, and potential investors?

Rising costs, shrinking margins

The new NI rates are expected to drive up staffing costs significantly, which is a big deal in an already cash-strapped sector. For many nurseries, wages are their single biggest expense. Add this to soaring operational costs, and it’s no wonder profit margins are taking a hit.

To cope, some nurseries are planning fee increases, but this comes with its own risks. Higher childcare fees could push affordability out of reach for parents, exacerbating the strain on a sector already grappling with staffing shortages and low pay.

A sector under threat

For some nursery owners, these pressures could prove too much, leading to closures or insolvency. Fewer nurseries mean less choice for parents and a tighter squeeze on already limited childcare availability.

At the same time, these challenges are also shaking up the mergers and acquisitions (M&A) market in the nursery sector. While it’s a tough environment for operators, it could present opportunities for buyers and investors.

What does this mean for buyers and sellers?

Here’s how the NI changes could impact those looking to buy or sell a nursery:

1. Motivated sellers: Rising costs may encourage some nursery owners to sell, particularly those who are finding it harder to maintain profitability. This could lead to more businesses coming onto the market.
2. Strategic buyers: For larger nursery groups or investors, this could be an opportunity to acquire smaller operators. Those with the resources to weather financial challenges might see value in consolidating the market.
3. Valuation adjustments: Buyers will need to reassess valuations carefully, taking into account the long-term viability of nurseries. Fee increases, potential service reductions, and regulatory pressures are all factors to consider.

What’s next?

The changes to NI are reshaping the nursery sector. While it’s undoubtedly a challenging time, it’s also a period of transition. Whether you’re a nursery owner trying to navigate these changes, or a buyer looking for opportunities, understanding the shifting landscape is key.

If you’re considering selling or investing in a nursery, getting the right advice is essential. The decisions made now could shape the future of your business or portfolio for years to come.

Need help with navigating the challenges or opportunities in the nursery sector? Contact us to find out how we can support you.