Nursery exits: Ofsted, funding reforms and why staffing ratios drive valuation

Are you planning to sell a nursery business in the UK? If so, then this insight-packed guide is for you!

We’re going to be sharing the three major themes dominating buyers’ conversations in 2025: your Ofsted record, the impact of the extended ‘free hours’ funding, and why your staffing ratios are so important. At the same time, we’ll also be covering the basic elements of selling a childcare business, so you’ll have all the info you need to proceed with your sale with confidence.

Here at Harris Acquire, we understand how complex and emotional it can be to sell a nursery business you’ve spent so much time building into a successful enterprise. That’s why we’re here to hopefully make the exit process a little simpler and much less intimidating.

Let’s dive right in, then, shall we?

The importance of Ofsted ratings

As you can imagine, probably the first thing any prospective buyer will do is check your nursery’s Ofsted record. After all, Ofsted judgements are the ultimate indication of the quality of your childcare business, as well as its future revenue and, crucially, risk potential. It goes without saying that a poor rating is not going to be very appealing to buyers and would give them major cause for concern.

At the same time, ‘chasing the badge’ out of desperation to improve your rating is not necessarily the right path to pursue. It’s much better to focus on achieving and maintaining a ‘Good’ rating than a very tenuous ‘Outstanding’. For one thing, a recently improved badge will still give buyers pause as it indicates the likelihood of an imminent re-inspection.

So, what does this mean for your future sale? What practical steps can you take to make your nursery a more appealing target?

Here are some suggestions:

• Prepare all your documentation and make sure it’s entirely up to date. This should include your training logs, your risk assessments, accident logs and complaints handling documentation.
• Review your processes and policies, in particular safeguarding. You need to ensure there are no loopholes, failing or discrepancies in any of your policies and procedures, especially when it comes to ensuring the welfare of children (and staff).
• Evaluate your senior staff to ensure the business has strong leadership in place to ensure a smooth transition.
• If you have a ‘Good’ rating, focus on maintaining this judgement and ensuring staff, children and parents are happy, comfortable, supported, motivated and engaged.

How funding reforms are reshaping revenue (and risk)

As of the beginning of September 2025, working parents – and some parents on benefits – can now claim twice the number of ‘free’ nursery hours for their little ones (aged 9 months to 4 years). Previously, the government offered 15 free hours – now that number has been extended to 30.

Of course, there are certain conditions; for example, most working parents must earn at least £9518 but less than £100,000 per year.

So, what does this change mean when it comes to your own business’s revenue and saleability?

Buyers will be interested in:

• Your local authority rates versus your regular fees. Specifically, they will be contrasting the blended funded rate you achieve against your overheads, nursery occupancy rates, and wage bill. This will help them determine the authentic profitability of your business.
• The timing of your local authority funding: each council is different, and some will opt to pay per month while others will pay with reconciliations or arrears.
• Nursery capacity and staffing implications: due to the new changes, it’s likely that more under-twos will be placed in nurseries and this has an impact on your staffing ratios as well as your capacity to accommodate young children.
• Eligibility churn and clawback risk: interested acquirers may want to evaluate how mid-term changes and reconciliations could affect your cash flow and how parents will confirm their continued eligibility. They will also be assessing your strategy for handling cases where children are no longer eligible, and they will scrutinise your bad debt policy.

To help you prepare your nursery for sale, then, in line with these new free funded hours, it’s important to do the following:

1. Carefully assess your nursery’s capacity to take on new government-funded children (particularly babies and toddlers). Be realistic about your business’s capacity to take on new entrants. Babies and toddlers require more space, more staff and specialised care.
2. Document your cash flow rigorously, taking care to demonstrate how you manage your funded hours without eating into your profits. Be sure to provide every detail, including money spent on meals, consumables and optional enrichment activities.
3. Create a conservative financial forecast to show to acquirers; this forecast should offer realistic estimates, factoring in phased roll-out and recruitment issues.

What your staffing ratios mean for your valuation

As you will surely be aware, there is an ongoing staffing crisis in the childcare sector, a problem likely to be compounded by the extra government-funded hours. This is a serious issue that acquirers will surely consider as they assess potential targets.

Consequently, they will be paying close attention to your staffing ratios, qualifications, and scheduling.

In recent years, staffing ratio requirements were changed by the government at that time, meaning that each member of staff was required to take charge of a higher number of children. This has had knock-on implications in terms of how many staff need specific qualifications and skills, and the capacity of childcare businesses to take on younger children.

So, how does all this impact your business’s valuation?

It probably goes without saying that, if you are struggling to provide enough staff to deal with a higher occupancy level, you will not achieve as favourable a valuation as you may like. Conversely, if you’re managing to handle the issue of staffing in an innovative, cost-cutting way – e.g. with flexible rota systems and multi-skills training – then your valuation will surely increase, and acquirers will be impressed.

While they are poring over your staff salaries and scheduling, they will also be factoring in other critical components, such as qualification levels of your staff, how many permanent staff you have, apprenticeships you provide, and your staff’s mentoring capacity. All these factors will have a bearing on your growth capacity, efficiency and profitability.

That said, how can you then proceed to add value to your nursery pre-sale? Here are some simple but effective strategies:

• Stabilise your leadership. It’s important to retain your current manager and deputies by providing them with clear incentives and notice periods. Buyers pay for continuity after all!
• Tighten up your compliance. This means prioritising safe, secure recruitment methods, updating the single central record, refreshing your DSL and paediatric first aid training, and closing out any lingering action points.
• Evidence your funding compliance. This should include standardising your parent agreements and invoicing, separating your funded hours from your paid extras clearly, and keeping a tidy reconciliation file.
• Rebalance your nursery’s room mix wherever feasible. If demand is strongest for under-twos, for instance, then model the staffing levels needed to expand that room or be clear why it’s not viable.
• Tune up your fee and charge structures. Align your meal and consumable charges with the cost, and schedule annual fee reviews that reflect wage inflation and local market rates.
• Finally, get inspection‑ready without triggering a storm! You could organise a pre‑sale mock inspection to make sure your business is entirely prepared. And don’t forget, a calm, organised environment matter more than cosmetic upgrades.

Getting your nursery acquisition-ready

Now that we’ve covered those all-important specifics, it’s time to shed a little light on the more basic elements of preparing your childcare business for sale.

1.     Settling the right price

We have gone into some detail above, explaining the common factors that can affect your valuation. However, it’s also important to think about what price would be right for you as the seller. This means coming up with a reasonable figure that a buyer should comfortably pay but which also provides you with a suitable return on your investment. Just think about all the years of hard work and effort you’ve poured into the nursery – you deserve to receive the best possible price.

It can help to consult with an experienced M&A advisor – a business broker, in other words – who can provide you with nuanced insight into valuing your nursery and what to expect. Their knowledge and expertise can help you to arrive at a desirable price that is right for both you and the buyer.

2.     Prepare for due diligence

As we described above, it’s important to make sure you are fully prepared for the sale process. This means having all your paperwork in order; from your contracts and accident logs to your tax returns and other vital financial information, such as balance sheet and profit/loss statements.

Due diligence allows your prospective buyer to analyse your nursery business from every angle, so it’s important to ensure that everything is above board.

Again, if you hire a business broker, they can take a lot of the weight off your shoulders, as can your solicitor.

3.     Plan for a handover period

It’s quite likely that a buyer will want you to stay on for a designated transition period – which you can negotiate during the acquisition process. This will be to ensure a smooth and straightforward change for everyone concerned. The actual degree of your involvement during this period can also be negotiated. Some buyers may just want to be able to contact you at will, others may want you physically present and be prepared to compensate you accordingly.

The most important thing is to provide stability for the children who attend the nursery, and for your staff, and a handover period helps to achieve this.

Final thoughts

Hopefully, this rather intensive guide has provided you with an abundance of handy information as you prepare for your nursery sale. While preparing to exit your childcare business will, of course, be a time of upheaval and probably some emotional turmoil, if you lay the groundwork for a smooth departure there’s no reason why things can’t proceed in a positive manner.

If you do decide you would like a business broker to help you make the sale a success, don’t hesitate to get in touch with our friendly and dedicated team here at Harris Acquire. We can help you with every aspect of the selling process, including marketing your nursery and mediating with your buyer.

To find out more about how we can help, give us a ring on 01926 757100 or send an email to Hello@harrisacquire.com.