Nursery Funding & Financial Sustainability in the UK (2025–2026)

Running a nursery in the UK has quietly become one of the most financially complex businesses in early years.

On paper, demand is high. Funded childcare is expanding. Parents need places.
But behind the scenes, many nursery owners are feeling the opposite of secure.

Funding rates don’t reflect reality, staff costs keep rising, Local Authority payments arrive late, and parents are understandably under pressure themselves. The result? Nurseries working harder than ever, with less certainty about the future.

This blog breaks down what’s really going on with nursery funding, fees, and cashflow, and what owners can do to protect long-term financial sustainability in 2025–2026.

How nursery funding actually works

Most nurseries rely heavily on funded hours, particularly the 15 and 30 hour entitlements for 3-4 year olds, and increasingly funded places for younger children.

While these schemes are designed to support families, they were never designed to fully cover the true cost of running a nursery.

Funding rates:

• Vary significantly by Local Authority
• Rarely keep pace with wage increases
• Often exclude meals, consumables, and extras

For many settings, funded hours are delivered at a loss. This isn’t poor management, it’s a structural issue built into the system.

Helpful Resources: Funding in the UK

The nursery funding gap no one talks about enough

The term funding gap gets mentioned a lot, but what does it actually mean in practice?

Simply put, it’s the difference between:

• What it costs you to deliver an hour of childcare
• What the Local Authority pays you for that hour

When you factor in staffing ratios, pensions, National Insurance, training, rent, utilities, food, resources, and admin time, the shortfall becomes clear.

For many nurseries, the gap sits somewhere between £1 and £5 per funded hour. Spread across dozens of children and a full year, that can quietly turn into tens of thousands of pounds.

Why itemised invoices are becoming unavoidable in 2026

From January 2026, the Department for Education requires nurseries to provide clear, itemised invoices showing exactly what parents are paying for.

This includes:

• Funded hours
• Chargeable hours
• Meals
• Consumables
• Optional extras

For some nurseries, this will feel like extra admin. But in reality, itemisation protects you.

Clear invoices reduce disputes, improve transparency with parents, and provide vital evidence during Local Authority checks or audits. The bigger risk lies in manual invoicing, where errors, inconsistencies, and under-charging are far more likely.

What nurseries can (and can’t) charge for

There’s still confusion around fees, supplements, and extras and that confusion often leads to risk.

Nurseries can charge for certain items, as long as they’re:

• Clearly explained
• Transparently invoiced
• Optional where required

Meals, consumables, additional hours, and premium services are all common examples. The issue isn’t usually the charge itself, it’s inconsistency. Charging differently month to month, or child to child, without clear records can quickly undermine trust.

Cashflow: the pressure point that catches most nurseries out

Many nurseries aren’t failing, they’re simply stuck in a cashflow squeeze.

Local Authority payments are often paid in arrears. Parent payments can fluctuate. Income changes month to month. Without visibility, even a “profitable” nursery can feel constantly on edge.

Cashflow problems rarely come from one big mistake. They come from not being able to see what’s coming next.

Why guessing future income is no longer enough

Long-term sustainability depends on forecasting, not intuition.

Effective nursery forecasting looks ahead at funded and non-funded hours, occupancy by room, staffing costs by ratio, seasonal patterns, and upcoming funding changes.

Many nurseries still rely on spreadsheets that are time-consuming and quickly outdated. When forecasts don’t reflect real attendance, decisions get delayed or made too late.

With better visibility, owners can plan staffing safely, spot shortfalls early, and make confident decisions rather than reactive ones.

Small changes that make a big financial difference

The most financially stable nurseries aren’t cutting corners or charging unfairly. They’re doing a few things consistently well:

1 – They understand their true hourly costs.
2 – They clearly separate funded and chargeable hours.
3 – They invoice transparently and consistently.
4 – They forecast income regularly.
5 – They align staffing to real occupancy, not assumptions.

This is about clarity and control.

How systems can reduce pressure instead of adding to it

Financial stress is often made worse by fragmented systems, one tool for registers, another for invoicing, another for funding, plus spreadsheets holding everything together.

When attendance, funding, and invoicing don’t talk to each other, errors creep in and visibility disappears.

Modern nursery management systems bring this together, helping nurseries automate itemised invoices, link attendance to funding, forecast income gaps, and reduce admin time.

The outcome isn’t just efficiency, it’s confidence.

The reality for nursery owners in 2025–2026

Funding challenges aren’t going away. If anything, scrutiny is increasing, and nurseries are being asked to justify their charges more clearly than ever before.

The nurseries that survive and grow won’t be the cheapest.
They’ll be the best informed.

Understanding your funding, fees, and future income isn’t optional anymorem it’s how you protect your business, support your team, and rebuild trust with parents.