Due Diligence Checklist for Nursery Buyers

Buying a day nursery is not like buying most other businesses. The regulated nature of early years provision means due diligence covers more ground than a standard business acquisition. You are not only reviewing financial performance. You are assessing a safeguarding environment, a staffing model built around legal ratios, a compliance history with a national regulator and a property position that must support continued registration.

Buyers who treat nursery due diligence like a generic business purchase often discover problems after completion. The ones who do it properly tend to buy with more confidence, negotiate from a stronger position and avoid the surprises that erode returns in the first year.

This guide sets out the key areas of due diligence for nursery buyers in England, what to ask for in each area and what the answers are telling you.

Why nursery due diligence is different

Most business acquisitions focus on financial performance, customer concentration and property risk. Those things matter in nurseries too, but they sit alongside a layer of regulatory and operational complexity that does not exist in most other sectors.

The key differences are:

• Ofsted registration is not transferable. A buyer must apply for their own registration, and the nursery cannot operate under a new owner until that registration is in place or a continuity of care arrangement is managed carefully.
• Staffing is not just a headcount question. Ratios are a legal requirement, and the qualification mix within those ratios affects what the nursery can offer and who it can care for.
• Funded entitlements affect income in ways that are not always visible in the headline profit figure. How funded hours are structured, administered and claimed matters financially and from a compliance perspective.
• Safeguarding sits at the centre of everything. A buyer is taking on a safeguarding responsibility, not just a commercial one.

None of this makes nurseries unbuyable. It makes thorough due diligence essential.

1) Ofsted registration and inspection history

This is where nursery due diligence starts.

Ask for:

• The current Ofsted registration certificate and registered provider details
• All inspection reports from the last five years, including any monitoring visits or welfare concern correspondence
• Confirmation of the registered person and what changes to registration will be needed on completion
• Any correspondence with Ofsted that sits outside formal inspection reports

What you are looking for:

The inspection grade matters, but it is not the whole picture. Read the reports for patterns. Are the same issues appearing in successive reports? Have improvements been evidenced? Is the narrative around leadership and safeguarding confident or hedged?

A Good or Outstanding grade with a strong leadership narrative is low risk. A Requires Improvement with a recent re-inspection is not necessarily a deal-breaker, but it requires a clear plan and a realistic view of what completing the improvement journey will cost you in time and resource.

Also consider what happens to the Ofsted grade during a change of ownership. Buyers should take advice on registration continuity early, not at the point of completion.

2) Financial records and profit normalisation

Nurseries are often owner-managed, which means the accounts do not always show the true picture of maintainable profit. Due diligence needs to go behind the headline figures.

Ask for:

• Three years of filed accounts or tax summaries
• Current year management accounts to the most recent month end
• A profit and loss breakdown by month, not just annually
• A schedule of any owner-related costs run through the business, including salary, drawings, personal expenses and family wages
• Any one-off costs or income that distort the normal trading picture

What you are looking for:

You want to understand maintainable profit. That means profit the business will generate under your ownership, with your cost base, without the owner doing unpaid or underpaid work.

Common adjustments include replacing owner labour with a salaried manager, removing personal expenses and identifying costs that will not repeat. Common traps include over-normalising profit by removing costs that are genuinely necessary, or missing wage increases that will be needed to retain staff after completion.

The monthly breakdown matters because nursery income can be seasonal. A nursery that looks profitable annually can have tight months in school holidays that affect cash flow significantly. Buyers should model this, not just accept an annual average.

3) Occupancy, income mix and funded hours

Revenue in a nursery is not as simple as it looks. Understanding what drives it and how stable it is requires more than a top-line income figure.

Ask for:

• Occupancy by age band for at least 24 months, not a snapshot
• A clear split between funded hours income and private fee income
• The current fee schedule and session structure
• The extras policy, including meals, consumables and any additional services, and how it is communicated to parents
• Funded hours claim history and any HMRC or local authority correspondence relating to funding
• Waiting list detail, including ages, anticipated start dates and how far in advance children are booked

What you are looking for:

Under-2 occupancy deserves particular attention. Ratios in baby and toddler rooms are tighter, so staffing cost per child is higher. These rooms can drive strong income when full, but they are also the most vulnerable to disruption if a key member of staff leaves.

The funded income split matters because funded hours have a fixed rate set by the local authority and the government. If a large proportion of income is funded rather than private, fee growth is constrained and margin is more directly exposed to wage increases.

The extras policy matters because the statutory guidance valid from 1 April 2026 is clear that funded hours must be accessible free of charge and there must not be mandatory charges linked to those free hours. A nursery with a poorly constructed extras model carries compliance risk that can affect both income and reputation.

4) Staffing, ratios and qualification profile

Staffing is the engine of a nursery. It is also the most common source of post-completion problems for buyers who do not look hard enough during due diligence.

Ask for:

• A full staff list with roles, contracted hours, qualifications, length of service and salary
• Rotas showing how ratios are covered across the full operating day, including cover for breaks, planning time and absences
• Agency spend by month for the last 12 to 24 months
• Overtime records and patterns
• Turnover history, including reasons for leaving where available
• Recruitment timeline and current vacancies

What you are looking for:

From April 2026, the National Living Wage for those aged 21 and over is £12.71 per hour. That is a floor, not a ceiling, and pay compression means many nurseries are facing upward pressure across their pay scales, not just at entry level.

A nursery that is meeting ratios through agency cover, excessive overtime or by relying on the owner to plug gaps is not delivering sustainable profit. The accounts may not show this clearly, but the staffing records will.

Qualification mix matters because a nursery must have sufficient staff holding relevant early years qualifications to meet regulatory requirements. Where the nursery has a graduate-led status or particular strengths in its qualification profile, those can support quality and Ofsted confidence but are also a retention risk if that person leaves.

Ask specifically about the manager’s role and whether they are counted in ratios. If the manager is regularly covering the floor, that is a signal that management capacity is thinner than it appears.

5) Safeguarding, compliance and training

A buyer of a nursery is taking on a safeguarding responsibility from day one. Due diligence in this area is not optional and it is not just about checking a box.

Ask for:

• The current safeguarding and child protection policy
• The designated safeguarding lead’s details, training record and how recently the training was updated
• DBS check records for all staff, including dates and the disclosure and barring update service status where applicable
• Safer recruitment evidence, including references and induction records
• Accident, incident and medication administration logs for at least the last 12 months
• The complaints log and how issues have been handled and documented
• The training matrix showing all staff training, including paediatric first aid, food hygiene and any role-specific requirements

What you are looking for:

You are looking for a culture of documentation and professional practice, not just individual records. A nursery that handles incidents calmly, records them properly and learns from them is well-run. A nursery where the logs are incomplete, where safeguarding training is overdue or where complaints are undocumented is a risk regardless of its Ofsted grade.

Paediatric first aid coverage across the operating day is a regulatory requirement. Check this is met with current certificates. Expiry dates matter.

6) Premises, registration conditions and property position

The property underpins the registration. Any material change to the premises requires Ofsted notification and may require a variation to the registration. Buyers need to understand the property position early.

Ask for:

• The lease or freehold title documents
• Current rent, rent review dates and mechanism, repair obligations and any dilapidations risk
• Landlord consent requirements for assignment
• Any restrictions on use, hours, signage or alterations
• Ofsted’s registered premises details and whether any room approvals or capacity conditions are attached
• Fire safety documentation including the current fire risk assessment, action log and most recent inspection
• Any planned maintenance, known building issues or capital expenditure required
• Business rates position and recent bills

What you are looking for:

A lease with a short term remaining, an imminent rent review or onerous repair obligations can materially affect the value of the business and the cost of running it. Buyers should take legal advice on the lease early, not after they have committed to a price.

The registered capacity and room approvals are attached to the premises. If you intend to change how rooms are used, expand capacity or alter the layout, that requires Ofsted engagement. Factor that into your planning timeline and cost.

7) Contracts, policies and parent agreements

The legal framework around how the nursery operates should be documented and enforceable.

Ask for:

• Parent contracts and the standard terms and conditions in use
• Fee payment terms, late payment provisions and the policy on funded hours delivery
• Supplier contracts, particularly for catering, cleaning and any outsourced services
• Staff contracts and any variation letters that differ from standard terms
• Any settlement agreements or outstanding employment disputes

What you are looking for:

Parent contracts that are unclear about funded hours delivery, extras or notice periods create disputes. If the current contracts are informal or inconsistent, that is a risk to income stability and something buyers can negotiate around or require the seller to address before completion.

Employment disputes that are unresolved at the point of sale can transfer with the business under TUPE. Buyers should understand what is outstanding and take advice on how liability is handled in the sale agreement.

8) Insurance and claims history

Ask for:

• Current insurance schedules, including employer liability, public liability, professional indemnity and building cover where applicable
• Claims history for the last five years
• Any circumstances reported to insurers but not yet formalised as claims

What you are looking for:

A clean claims history is straightforward. If there have been claims, ask what caused them and what changed. A one-off incident with documented corrective action is different from a pattern of recurring issues. Insurers will ask similar questions when you seek cover after completion, so understanding the history early avoids surprises.

A practical due diligence checklist

Use this as a working reference when reviewing an opportunity.

Ofsted and regulation

• Current registration certificate and registered provider details
• Inspection reports for the last five years including monitoring visits
• Any Ofsted correspondence outside formal reports
• Registration continuity plan for the ownership change

Financial

• Three years accounts or tax summaries
• Current management accounts to latest month end
• Monthly profit and loss for at least 24 months
• Profit normalisation schedule with evidence
• One-off costs and income clearly identified

Occupancy and income

• Occupancy by age band for 24 months
• Funded versus private income split
• Fee schedule and session structure
• Extras policy and how it is communicated
• Funded hours claim history
• Waiting list with ages and anticipated start dates

Staffing

• Staff list with roles, qualifications, hours and tenure
• Rotas showing ratio coverage across the day
• Agency spend and overtime by month for 24 months
• Turnover history and current vacancies
• Recruitment timeline and approach

Safeguarding and compliance

• Safeguarding and child protection policy
• DSL details and training record
• DBS records and update service status
• Safer recruitment evidence
• Accident, incident and medication logs for 12 months
• Complaints log and resolution evidence
• Training matrix including paediatric first aid and food hygiene

Premises

• Lease or title documents
• Rent, rent review dates and repair obligations
• Landlord consent requirements
• Ofsted registered capacity and room conditions
• Fire risk assessment and action log
• Maintenance records and known issues
• Business rates position

Contracts and employment

• Parent contracts and standard terms
• Staff contracts and any variation letters
• Supplier contracts
• Any outstanding employment disputes or settlement agreements

Insurance

• Current insurance schedules
• Five years claims history
• Any circumstances reported but not yet claimed

Final thoughts

Nursery due diligence done properly takes time, but it is also where good buyers separate themselves from buyers who overpay or inherit problems. The information you gather is not just about identifying risk. It is about understanding what the business actually is, so you can price it correctly, structure the deal sensibly and run it confidently from day one.

If a seller cannot provide clear answers in any of these areas, that is itself information. Experienced buyers treat gaps in documentation as a pricing conversation, not a reason to walk away immediately.

Sources

Department for Education, Early education and childcare valid from 1 April 2026 (charging rules, funded hours conditions and extras guidance):
https://www.gov.uk/government/publications/early-education-and-childcare–2/early-education-and-childcare-valid-from-1-april-2026

Ofsted, Main findings: Childcare providers and inspections as at 31 August 2025 (provider numbers, registration and inspection outcomes):
https://www.gov.uk/government/statistics/childcare-providers-and-inspections-as-at-31-august-2025/main-findings-childcare-providers-and-inspections-as-at-31-august-2025

UK Government, National Minimum Wage and National Living Wage rates (National Living Wage £12.71 from April 2026):
https://www.gov.uk/national-minimum-wage-rates

UK Government, Disclosure and Barring Service checks: guidance for employers (DBS requirements and update service):
https://www.gov.uk/guidance/dbs-check-requests-guidance-for-employers

UK Government, Workplace fire safety: fire risk assessments (duty to carry out, review and record):
https://www.gov.uk/workplace-fire-safety-your-responsibilities/fire-risk-assessments