The past year may have been a financial whirlwind of ups and downs for some child care business owners, and for others (let’s call them the lucky ones), revenue continued to steadily stream in. Regardless of your current financial situation, it is always a recommended beginning-of-the-year best practice to revisit the financial tools and systems that you have in place to ensure that they are still operating smoothly and serving the needs of your business.
The financial tools and systems you have in place should help you keep your finances organized and cash flow properly managed. Business owners who do not take the time to get and stay organized and keep an eye on their cash flow will quickly find their head underwater. In fact, according to SCORE, poor cash management accounts for 82% of business failures.
Having a strong handle on your finances can be a large undertaking and if you believe that you’re already barely keeping your head above water or you’re not a numbers person, it may be time to consult with a financial advisor to help put you on the right path. But for now, to get you started and familiar with your numbers, I would like to share a checklist of a few simple areas of your business that you can take a look at and begin improving right away if needed.
1. Know Your Numbers
Make it a practice of regularly looking at all the important numbers that indicate the health of your child care business. If you are not well versed in things like profit & loss, cash flow, or projections it is essential that you find yourself an accountant or financial advisor that can help you with these things. If you feel like you lack the resources to hire an accountant, reach out to your local SCORE office. SCORE provides free & confidential business advice through their network of (retired) volunteer business experts.
Here are a few of the key numbers you should be tracking:
- Projected Budget -You should have a projected budget and track your income and expenses against that planned budget to see how you are doing compared to your plan. During this time of COVID it may be wise to have 2 or 3 sets of projections, so depending on what your capacity restrictions are, you know where you stand in different circumstances.
- Profit & Loss/Balance Sheet – You should analyze your Profit & Loss Statement and Balance Sheet on a monthly basis. If you don’t have an accountant or financial advisor, it’d be a good idea to find one and have a regular time to go over all of the above.
- Cash Flow Projection – Cash flow is the money that is moving (flowing) in and out of your business in a month. It is important to know when you will have excess cash or a shortfall before it happens. You will feel less stressed if you can accurately predict when times will be lean or when you can afford to handle extra expenses.
- Enrollment Numbers – It is important that you always know how many children you have enrolled based on FTE (Full Time Equivalent) vs your Licensed Capacity. If you have open spaces, knowing what this gap is will help keep you motivated in your efforts to enroll more children. Keeping spaces open too long without any effort to fill them is like throwing money out the window.
- Projected Budget -You should have a projected budget and track your income and expenses against that planned budget to see how you are doing compared to your plan. During this time of COVID it may be wise to have 2 or 3 sets of projections, so depending on what your capacity restrictions are, you know where you stand in different circumstances.
2. Revisit Your Payment Policies
Does your parent handbook include a thorough Payment Policy section? At the start of the pandemic, having a signed airtight payment policy agreement from parents is what saved some child care businesses from completely collapsing. Those businesses that didn’t have one signed and in place had to battle to collect tuition dollars from parents and continuously struggle to convey the importance of continuing to pay to reserve their child’s spot.
Creating a Payment Policy that parents sign upon enrollment is an absolute must and will allow you to hold parents accountable when there are billing issues. Your Payment Policy should cover everything from accepted forms of payment, payment due date, school closures, absences, and late payment fees.
A few payment policy best practices that we recommend are:
- Utilize automated and contactless payment collection systems to automatically handle recurring tuition charges. This will help to eliminate having to spend your time and resources hunting down those “forgetful” parents.
- Have clear policies regarding sick days, vacation days, and various reasons your center may need to close. Regardless of whether an enrolled child has a sick day or goes on a vacation, or if your school has to close for a snow day, you still have overhead costs to maintain and a staff to pay. If your goal is to maintain the maximum cash flow – even during a closure – you should be sure that your policies protect the school’s best interest and that parents are aware of these policies before they need to be utilized (and enforced.)
We recommend that you do not offer discounts, credits, or reimbursements for absences due to sick or vacation days, or short holiday closures. Parents should pay their weekly tuition regardless of attendance. However, you may want to offer a little more flexibility for school closures due to planned maintenance, natural disasters, or COVID quarantines. Some schools have opted to only charge 50% tuition for a COVID closure, others have charged the full rate – or nothing at all. The important thing is that you think about what is best for your school and your enrolled families and put it in writing so there is no confusion later.
- Clearly communicate the consequence for late-payments and exclusion from the program. Then follow your policies. Many providers have a hard time enforcing their payment policies because they are such caring individuals, but you must protect your business and not give your services away. If your policy states that payments are due by 12pm on Friday for the following week, late payment fees should begin accruing at 12:01pm on Friday. Your policy should clearly state when late fees begin, and when services will be discontinued due to non-payment.
3. Revisit Your Payment Policies
If you’re still keeping track of parent payments with sticky notes and excel sheets and accepting all forms of payment (cash, credit card, and check), I highly recommend you to explore some of the many automated payment systems that are available now – there are many that are even specifically created just for the child care industry. Procare, Smartcare, Tuition Express, EZCare, Sandbox, Brightwheel, Kangarootime, even Quickbooks Online – just to name a few – all have automated options. I am sure there are more child care management systems with this capability. Check with your current provider, or do a quick Google search to find one that will work for you.
Time is money! Automated payment programs can help eliminate time spent tracking down payments from busy or forgetful parents. Automation is easier! Let automation do the work for you! Most programs have rates similar to that of credit card processing fees; so the program won’t break the bank and the time and aggravation you will save are priceless.
4. Add Additional Revenue Streams
Find ways to add additional revenue streams to your child care business. One idea would be adding a virtual learning option as a paid service. Depending on the type of virtual program you offer, you can still charge a premium for specialized or customized preschool education. Many parents who might be hesitant to enroll their child in a preschool during the times of COVID still want a preschool-type experience for their little one.
Another option would be to add a school-age support program. Offer care for school-age children and assist them with their own virtual learning. Provide a way for the children to attend their classes virtually and assist them with their homework.
Some child care business owners have even gotten creative with some outside-the-box service ideas. Offering a meal pick up service every Friday, offering a monthly family photo shoot, or a parent’s night out are all ways to add extra dollars to your bottom line. Start brainstorming to see what might appeal to parents in your area.
5. Revise Your Pay Scale
It might have been a while since you’ve revisited your employee handbook. Take a look at it and see what type of pay scale and raise schedule you have in place. If you have a performance-based pay scale, now might be a good time to consider swapping it out with what is called a “stepping stone pay scale.”
A performance-based pay scale can prevent you from projecting your payroll budget for the year, because you don’t know the amount of the raises that you will feel like giving out when it comes time for annual reviews. It’s completely subjective. Performance-based raises can quickly become the fuel for drama and a negative workplace culture. Your employees might feel like only the “favorites” are rewarded.
Instead, base your pay scale on credentials and qualifications. Create a stepping stone system by compensating employees for obtaining a new certification, completing a college credit, or earning their degree. You can also consider other qualifications such as years of experience in the field, years of employment with your company, and stellar attendance record. Using a standardized method of calculating starting pay and annual raises will help ensure your pay scale is fair.
It will also allow you to have a better financial outlook and budget accordingly for wage increases and bonuses. Typically, this type of pay scale has minimum wage as its baseline and anything above it, including pay raises and bonuses, are based on length of employment, credentials, and completed continued education, and what you can realistically afford.
If you decide to convert to a stepping stone system, any new employees can come in with your new pay scale system in place from day one. However, be sure that your current employees are grandfathered in at their current rate of pay, and that the system change will happen with their next raise. Be sure to communicate the change to your team, and share all the of benefits that go along with transitioning to this new scale to create excitement around it; such as eliminating biased raises and bonuses, eliminating employee stress when having a lower performance day, eliminating paycheck uncertainty, setting expectations, and milestones to look forward to.
