Running a playgroup

ALTEA

Hello I would like some advise regarding the running of a Playgroup. My wife and her 2 friends are going to be taking over the running of the Playgroup that they are currently working for. The current owner no longer wants to run the business and as such is giving the business to them, there will be no cash in the business when they take over and so have planned to work for free until such times that they can afford to pay them selves. I believe that the out goings are very low and they would each be able to give a small about of money initially to pay any immediate bills. I would like to know
1) what is the best way to run the business as they would all like to have equal responsibilities and liabilities. While keeping things as simple as possible.
2) How do we make sure that the current owner doesn't leave them with any nasty surprises eg debts. (We have no reason to believe that there are any and the current owner seems very genuine). would setting up a brand new bank account cover this as the business would effectively be a new one to what it is today and have no liability for the old business?
3) Please could you impart any other advice that you may have regarding this type of thing as its all new to us (from a business point of view as my wife and her friends are fully qualified to provide the child care)
Many thanks.

Savvy_Sue

I think you've got some very good questions there ...

And here's a few more ...

4. On what basis is the playgroup currently running? Is it a Ltd Co, or does the 'owner' run it as a sole trader, partnership or some other model?

5. You say your wife and two friends are taking it over, and they currently work there. Are they paid? Do they want to continue to pay themselves, and will the income from children allow for that?

3. Are there any other paid staff? Are (more) paid staff needed, or can it run with volunteers?

6. What are the premises like - do they rent or own the space they operate from? If they rent, how long is the rental agreement in place for?

7. What do the accounts look like? Is it a going concern? Is there an accountant? Have they discussed their plans with the accountant? If no accountant, they might be well to get some advice as how they set things up could make a huge difference to their future income.

8. HAVE YOUR WIFE AND HER FRIENDS TAKEN LEGAL ADVICE ON THE BEST SETUP FOR THIS? Please don't say they can't afford to: they cannot afford NOT to.

9. WHY is the current owner giving up? If it's because the business is making no profit, what can they do to change this?

10. WHY do they want to take over this business? Have they considered starting a completely new business?

If I could answer your questions, I'd give it my best stab, but I can't ... All I know is that at least there are 3 of them, so they shouldn't get into a stalemate on a vote if they each have equal rights. But they do need to do all the 'what if' scenarios: what if one of them wants to leave the business, what if they have a horrible falling out, what if one of them gets pregnant or sick and the other two end up doing more work, what if one of them moves away and so on and so forth.

paddyrg

Just a note on Sue's #10 - you can be entirely sure there's no debt left or nasty surprises by starting afresh. The current business is going anyway, and beyond its name sounds like it has very few assets. Your wife and friends could even just buy the few chewed toys from the current owner for a notional sum, but start ask the company structure and accounting from scratch.

Pennywise

Also check on accrued liabilities to staff, i.e. holiday pay, redundancy rights, etc. If your OP takes it over as a going concern, then she takes over all the staffing liabilities too.

In fact, this could be a way of the existing owner getting rid of such liabilities to the two people taking over. At the moment, they are probably owed quite a lot in terms of holiday/redundancy, which the current owner would have to pay them if it was closed down.

Also re the premises, the lease needs to be checked over by a solicitor. If it's a "repairing" lease, there could be huge liabilities to repair it, redecorate it, etc., which again, by taking over, you could inherit.

Please, get proper legal advice and don't just get sucked in to this - it could ruin you personally if there are liabilities to be inherited. As said above, you can't afford not to get proper advice and to have the transfer handled properly with sale agreements etc.

ALTEA

Thanks for your responses and thoughts. What are the main differences between taking it over as a going concern and starting a fresh. I think it would be better to start a fresh. What is involved in doing this? Is it just as simple as opening a new bank account or is there other things that need to be brought into consideration.
Thanks

Suarez

I think it will be a case of the 3 of you sitting down with as much info as possible (Accounts, bills, wages etc) and writing a business plan with financial forecasts.

You can download business plan templates online.

Savvy_Sue

I'd say it's not quite as simple as opening a new bank account, even using a different name, but I'm not in a position to go into detail - no time, not enough knowledge.

Can you answer any of the questions I asked? That will help us give better answers, BUT they will be NO substitute for 'proper' advice. That's the kind you have to pay for, on the grounds that you can then sue the pants off them if the advice was wrong.

Pennywise

ALTEA wrote: »

Thanks for your responses and thoughts. What are the main differences between taking it over as a going concern and starting a fresh. I think it would be better to start a fresh. What is involved in doing this? Is it just as simple as opening a new bank account or is there other things that need to be brought into consideration.
Thanks

No, it's not enough to just get a new bank account - far from it. All existing staff would need to be given P45's to end their current employment. You'd need a new lease/licence for the premises. You'd need new agreements for suppliers, alarm rental/maintenance, power, utilities, etc. You have to register as a new business with HMRC for tax and Payroll. You'd need new agreements with all parents etc. Basically you have to start afresh with absolutely everything. But, you probably have to do that anyway unless the playgroup is currently operated as a limited company.

But, more information is needed as asked above. Does the current owner run it as a sole trader, partnership or limited company? Until that is clarified, you won't be able to proceed as that point is critical and impacts everything else.

ALTEA

Thanks,
I will try to answer some of the questions.

The playgroup is currently running as a sole trader.

My wife and her friends are currently paid and all members of staff are on temporary contracts that are renewed termly as numbers of children dictate. They anticipate not getting paid initially until later on in the year as the numbers of children increase (as usually happens).

The premises is a demount-able within a school grounds and they pay rent to the school. (I think that a few years ago it was the schools idea to offer them the demount-able as they like to have a close relationship with the playgroups). The playgroup was formally in a community centre. I think that the lease is renewed yearly.

They are meeting with the accountant tomorrow. (what should they be asking the accountant?).

We believe that the current owner is giving up as she is close to retirement and her heart isn't in it anymore. We believe the business makes a very small profit of around 5K a year after bills. I think that any monies left will be taken by the current owner and then my wife and friends will start with just a small amount of cash that they will put in them self's to cover such things as insurance etc.

The main reason they want to take it over is for job security. If someone else comes along and starts running it then there is a risk that they will not have jobs and they may not even like working for that person. They have put allot of effort into the playgroup and have the ability to run it so they want to do it.

They have not taken any legal advise as yet.

thanks

pleasedelete

A playgroup is usually the term used for a voluntary or charity group. Daycare settings are PV or I. Private, voluntary or independent. It is highly unlikely to be a sole trader.

You need urgently to contact the LA childcare team. You will need a new ofsted registration etc. If the LA fund places they are not obliged to do so if it changes hands- they can end the funding without notice.

The LA will have a specialist team who will offer free advice including financial planning.

pleasedelete

To add. They should probably consider letting it fold. Taking their redundancy and using that to set up as a new provision negotiating a lease with the school. There are lots of pitfalls with leasing from schools- not least being stung for business rates if you have a dedicated space and are running a business in it (schools dont pay business rates but the Council can chose to invoice businesses in school premises).

Some schools often take a proportion of profits not a rental amount (one school i know gets £30k on a 50/50 split). The school or academy is not allowed to subsidise the group in anyway and so if the current rental is low beware as it may shoot up.

The school should be putting the space out to tender if the current provision closes to ensure they are getting best value as well. No obligation to transfer a rental etc

Do they have the relevant qualifications or is the owner the highest qualified.