Table of Contents

Financial Management and Record Keeping

Types of Regulated Child Care in New York State Financial management is the backbone of your business. Planning for child care involves many decisions that impact finances, starting with business structure and contractual decisions regarding the cost of care. The cost of care is impacted by overhead costs of the rent/mortgage, insurance, personnel costs, the cost of materials, supplies and more. Business income is primarily driven by family tuition payments for child care – grants and subsidies tend to be only available to programs, usually centers or school-age programs that are organized as not-for-profits. This section reviews the importance of record keeping and financial components of child care business management and provides tools to help you to operate a sustainable business. In addition to the information included here, you can get a overview of what financial management incorporates by reviewing the financial management toolkits from Opportunities Exchange for both family child care home proprietors and center-based business operators or by exploring resources available on the NY Early Learning Hub. For many child care operators, financials hasn’t been a focus – tune up on financial management terms with the help of First Children’s Finance.

Record Keeping

Keeping good records is foundational for operating a strong business. Record keeping is essential to many components of your  business, helping you to assure licensing compliance and safety, to track and predict enrollment and keep track of attendance, to assure timeliness of payroll and accounts payable, to assure the program has needed food, materials, supplies, and more. Ultimately, all elements of the business are also tied to financial record keeping.

In his video, the Top Three Record Keeping Tips for Family Child Care Providers, Tom Copeland identifies 1) saving receipts for all household expenses, 2) keeping track of all the meals and snacks you serve, and 3) tracking all the hours you work in your home as practices that will make the biggest difference in reducing business taxes and assuring you are able to get all the deductions you are eligible for.  Additional points: 

  • It is important to keep your business and personal finances separate
    Among other things, business accounts keep business income and expenses clear, simplify financial reports and tax preparation.
  • Track ALL sources of income
    Tuition, fees, grants, donations, any sales, other
  • Save all receipts for expenses associated with your home (#1 above):
    Mark personal/business & percent to each
    If there is no receipt, provide adequate documentation, such as a cancelled check, credit/debit card statements, last: written record or a photo
  • Record all meals/snacks served to children (#2 above)
    Keeping track of meals and snack (and attendance at meals!) is required for CACFP participation and reimbursement for meals served.
  • Track all hours you work in your home (#3 above)
    All business owners work hours beyond their hours of operation and should be compensated for them! Be sure to consider all of your time when calculating the true cost of care.
  • Save all business records for 3 years

Time-Space Percentage

Time-space percentage is a calculation that home-based child care business owners use for budgeting and to determine tax lability. If an item is used ONLY for business, all of it can be counted as a business expense. For example, 100% of the cost of food purchased for children in the program can be claimed as a business expense. However, if you share the laundry soap or other supplies, the time-space percentage must be applied to determine the proportion of expenses that can be claimed as a business expense. The time:space percentage is commonly applied to mortgage or rent, property taxes, home insurance premium, the cost of home improvements and repairs, utilities and any shared equipment, furniture appliances or toys.

Time Percent

The time percent is made up of the total hours you work for your business. Remember to keep track of all the hours you work, before, during and after business hours!

  • When children are present: from the moment the first arrival to the last departure
  • After hours and on the weekends when no children are present and you are working on business activities: business administration and record keeping – marketing, enrollment, billing; planning curriculum, shopping for supplies, cleaning, preparing meals
Space Percent

Figuring out your space percent means being realistic about how much of your home is regularly used for child care for how much of the week. Review Tom Copeland’s blog on time-space percent to help you work through your own calculations. To figure out your space percent you will need to:

  • Calculate the square footage of all the rooms that are used for your business at least 2-3 times per week; a close estimate works
  • Include basement and garage square footage
  • Do not include the dimensions or amount of outdoor space

Budgeting

Budgets are used to estimate how much money will come into and go out of the business over a given period of time and anticipate the costs of running the business. Once the business is in operation, monthly or yearly budgets can be reviewed and compared to the actual costs of running the business.

Budgeting can help to determine what items are essential for business operation and what expenses need to be planned for. Budgets are also used to help determine minimum enrollment levels and cost of care or the charge for tuition. The most expensive part of starting a child care business will be purchasing equipment, materials and supplies. The most expensive part of operating a child care business are personnel costs. It is not uncommon for child care programs to host raffles and other fundraisers, or even publish and sell their own child development books to help make sure the budget balances.

  • Budgets list business income and expenses by category
    Income sources include tuition and fees, child care subsidy payments, grants and food program reimbursement income. Common expenses include teacher background checks, payroll and taxes, payroll fees, employee benefits, payments for legal and accounting services, advertising and marketing, professional development, facility/home rent/mortgage, property taxes for home-owners, utilities, phones, the cost of food served and educational supplies. It is important for family and group family to include budgeting for their own healthcare coverage, sick and vacation time, even for retirement.
  • Child care programs can save money by asking parent/guardians to provide basic supplies for their children; their own diapers and wipes or a blanket for naps.
  • When purchasing items second-hand, it is critical to ensure that there are no recalls on the product or material and that they are in good condition and cleaned well before integrating them into the classroom.
  • Comprehensive budget templates for all modalities of care that include sheets to calculate child tuition data, assistant-teacher data, monthly forecasting, profit & loss and time-space percentage  are included in the child care toolkits and can be downloaded from Opportunities Exchange.
  • There are also a number of financial resources that can be downloaded from First Children’s Finance, among them, a budget template for family child care providers.  
  • Last but not least, wages! Low compensation plagues the child care industry. When setting fees, make the pay you offer a livable wage. Don’t forget to plan for the income you also need, and to plan for retirement from the beginning. Watch these videos by Tom Copeland to help you figure out how much you should save for your retirement and when the best time is to start claiming social security benefits.

The Iron Triangle of Early Childhood Finance

The bottom line, as for any business, is that at a minimum, income must cover costs. The Iron Triangle: A Simple Formula for Financial Policy in ECE Programs states that child care programs typically focus on their tuition rates when looking to balance the budget, and identifies two additional key elements tied to tuition that are important to include in sound fiscal management for child care businesses. Tight budgets plague the industry and increasing inadequate wages can be addressed by paying close attention to the parameters of the three components of the iron triangle that operate in tandem and relate to each other:
1) full enrollment
2) full fee collection, and
3) assuring that revenues cover the per-child cost of care

Full Enrollment

Almost all child care revenue is tuition collected on behalf of an enrolled child. If children are not enrolled, the funding does not flow. Keeping full enrollment is nearly impossible – create a budget that reflects 85% enrollment and be sure this meets your program expenses. Also identify the minimum number of children enrolled that you need for the program to survive. Creating systems to track enrollment, ages of children, attendance and projected enrollment over time will help you to anticipate any enrollment needs and plan for any changes necessary.

Enrollment Considerations
  • Policies regarding absences, full-time vs part-time slots, age:ratio changes, holding a spot for siblings.
  • Desired capacity vs. licensed capacity…
    Will full enrollment generate more revenue than raising rates?
Strategies
  • Enrollment Data: use it to drive decisions!
    Keep track of your enrollment and enrollment projections over time;
    be sure to increase or decrease staff accordingly
    Consider using child care business software. Our Early Childhood Business Alliance members are able to access Alliance CORE™, the technology being used by NYSAEYC’s pilot alliance. Technology will help you save time and money, making it easy to support online enrollment, maintain files, conduct billing, record payments and easily pull reports
  • Market all the time: develop and maintain a waiting list.
    Continue outreach even when you don’t have any current openings.
  • Quickly address any anticipated shortfall
Full Fee Collection

Collecting tuition payments and other fees — in full and on time — is essential for maintaining your cash flow and staying current on expenses. Fees and tuition only become revenue when they are collected.

Fee Collection Considerations
  • Factors like how often and how you bill can have a big impact.
  • How do your fees vary depending on the age of the child?
  • Do you offer a sibling tuition discount?
  • Is tuition paid the month before care or at the end of the month after care is provided?
  • Will you charge a deposit or have an annual fee for materials?
  • Again, automation can help and will save you time (and therefore, will also save you money!). Child care business management technology enables you to send tuition bills quickly and can be set to send automated reminders for late payments.
Strategies
  • Have clear policies: be firm and consistent with families
  • Bill on a timely basis: consider electronic payment
  • Reconcile bad debt
  • Actively market all of the time
Revenues cover per child cost

Setting tuition fees accurately involves many factors. The amount that families pay in tuition, or the price of care, may not reflect the true cost of care. Often, fees are established to be within a similar range as other programs in the area. There are a few different tools that can be used to determine cost of care, which includes all business costs; facility, payroll, materials, supplies and more. Affordability and Regional Market Rates tend to be related within the context of the local cost of living.

The bottom line:
parent fees + third party payments must equal per-child cost. Revenue-Cost=profit.

The Cost of Care – Setting Your Fees

Deciding to operate a business means you establish the how much you will charge for child care. Rates that you charge directly impact your program and your livelihood! To determine what you will charge, you might consider doing a little market research. Rates vary by type of child care, age of child, hours in care, and for each individual program. Start by finding out what programs similar to yours are charging.

Regional Market Rates – Another resource is to look at the market rates that are set for your County. To establish the rates, OCFS surveys child care programs in counties throughout NY every two years and sets the market rate based on the 75th percentile of all reported rates. This rate is the maximum amount the Department of Social Services can pay for child care and is updated biannually. Search the OCFS site for current market rates for Tompkins and Cortland Counties.

Sliding Fee Scales – Some child care programs set their rates based on the philosophy that all children, regardless of parents’ financial resources, should have the same quality of care. These programs charge rates based on parents’ income, increasing with the family’s ability to pay. (vs set fees and scholarship)

Business Financing

Start Up Financing

Creating a space for child care in your home can really add up. Home rehabilitation, on-going maintenance, required furnishings, like cots or rest mats, curriculum materials and supplies are just a start to the expenses you will encounter. Funding for starting up can be hard to find. Here are a few ideas to get your program started.

  • Participate in a savings matching program at Alternatives Federal Credit Union
  • Ask friends/family to invest in your business, as a gift or a low interest loan
  • Create a fundraising event or a go-fund-me page online
Business Loans

Use caution if considering a business loans. Tight child care budgets can make it hard to account for on-going loan payments. If you need to acquire a loan for your business be sure you understand the terms and penalties of such an agreement.

Grants and Subsidies

Contact our office to learn about current grants and subsidies are currently available to all child care businesses. Applying for grants can be challenging and we are available to support you in the process.

Cost Saving Opportunities

Saving money adds to your budget and every bit counts. Be sure to maximize your savings using the following resources:

  • Automation: consider using business management technology, it will save you time and money
  • Regional Access
    Local, wholesale foods, delivered to your home; open an account today!
  • Participate in CACFP, contact our office if you haven’t already
  • Access the many cost and time sharing resources the NY Early Learning Hub has to offer:
    The learning hub is a customized web platform With over 1600 resources. Currently requires NAEYC Membership – or contact us at the Council – we can access the site for you!
Building Access to Child Care Project (BACC) and Early Childhood Business Alliance (ECBA)
Early Childhood Career Development
NYS Child Care Licensing Process
Creating a Business Plan
Business Structure
Risk Management and Insurance
Financial Management and Record Keeping
Taxes
Child and Adult Care Food Program (CACFP)
Marketing
Curriculum Planning
Program and Employment Records and Forms
Working with Families: Communication, Contracts and Help Paying for Child Care
Caregiver Qualifications, Training and Professional Development Requirements
Quality Improvement
Professional Organizations
Frequently Asked Questions – FAQs
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