As we all start to settle into a “new normal” and the reality of the longer term effects of COVID-19 on our health, our economy and our day to day lives start to become clearer, there are many businesses that are starting to benefit from much needed Government support, such as the Coronavirus Job Retention Scheme (CJRS).   

However, in a real blow to the childcare sector, an announcement was made by the Government on the 17th of April 2020, incidentally the last working day before the CJRS portal was opening, that early years providers will not be able to fully access funding from the CJRS and the early years entitlement funding.   

The guidance from the Government confirmed that a private provider should only furlough employees and seek support through the CJRS, if there are certain conditions that are met: 

  • The employee works in an area of the business where services are temporarily not required and where their salary is not covered by public funding
  • The employee would otherwise be made redundant or laid off
  • The employee is not involved in delivering provision that has already been funded (free entitlement funding) 
  • (Where appropriate) the employee is not required to deliver provision for a child of a critical worker and/or vulnerable child; and 
  • The grant from the CJRS would not be duplicative to the other public grants received and would not lead to financial reserves being created.  

This was an announcement that will no doubt have caused shockwaves throughout the industry and will leave a large number of nursery workers at risk of redundancy. There are many nurseries around the country that are being asked to remain open to provide essential care to key workers children but these are often operating with far less children than are usually in the care setting, which for many nurseries, will be having a real financial impact, even without the affect of this announcement being considered. 

There will be a certain number of children that need to be in the setting each day to ensure that the business is generating enough income to cover the operating costs, the tax on the profits and the business owners drawings, this is known as the break even point, and if the business is generating less income than this amount, it will be effectively making a loss, and this is not sustainable in the long term.  

If you have any more questions about breakeven point and how this is calculated, why not have a look at our article here.  

Nurseries now not being able to access support under the CJRS may have had a significant impact on your business as the Government are forgetting that staff costs are not the only cost associated with running a business like this, making this a very tough time for early years childcare providers.  

So, what can you do? 

The National Day Nurseries Association is lobbying the Government to overturn this decision and it’s encouraging its members to write to their MP’s. However, it’s unlikely that any decision is going to be made quickly so for now, you need to work on the basis that you aren’t going to be able to make a claim under the CJRS. 

If you’ve already made a claim and you don’t meet the exact criteria listed above, you will need to be prepared for this claim to be declined by HMRC once it’s processed or if the funds are paid to you, you should expect to have to repay them at some point in the future (which could be subject to interest and penalties, but it’s impossible to say for certain). 

Below we detail the things you can do to reduce the impact on your cashflow.

1. Get your financial records up to date

Here at A4G, we are having conversations with our clients all of the time about their management accounts as they can be a key tool to use in making decisions about the business and in uncertain times such as this, it becomes even more important to have access to accurate financial data. 

Take a look at our article at the button below about why management accounts are so important.

What are management accounts and why do you need them?

2. Cashflow planning for the next 2 months 

Once you have up to date management accounts, you need to undertake a cashflow planning exercise, I’d suggest that you need to look at your cash flow for the next two 2 months as a matter of urgency but also be considering the likely position for the next 6 months and 12 months – although these are going to need to be very flexible based on the uncertainty that we are all currently facing. 

Read our guidance on cashflow planning for the next 2 months at the button below.

How to start cashflow planning for the next 2 months

3. Explore other financial support from the Government 

If your business premises qualify, you should have already received your £10,000 grant from the local authority (letters were sent out automatically to all qualifying business) and you should speak to HMRC about any upcoming tax liabilities and get time to pay arrangements in place.   

There was also an announcement made by the Government on the 27th of April about the “bounce back loans” – it’s not yet been announced which businesses will qualify for these but the application is meant to be more straight forward than the process for the Coronavirus Business Interruption Loan (the application process for these loans has proven very onerous and the banks have struggled to cope) and I’m hopeful that these loans will provide much needed support to a lot of our client base.    

Explore other financial support and guidance

We’ll be adding updates about these loans to our Coronavirus Business Advice Hub on our website as and when we have further details about these. 

If you have any questions about getting started on any of the above or what you need to do next to ensure your business survives coronavirus, please get in contact with Caroline on 01474 853 856 or email caroline.coleman@a4g-llp.co.uk. 

If you’re not getting up to date or proactive advice from your accountant and want to receive our daily updates with advice, tools and details on the latest announcements, sign up to our newsletter here. You can also head over to our Coronavirus Business Advice Hub all the previous newsletters and guidance we’ve sent to our clients. 

We are here to support you. 

Contact me today!

Caroline Ward

FCA

Partner

01474 853856

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