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Financial Management and Record Keeping |
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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 KeepingKeeping 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:
Time-Space PercentageTime-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 PercentThe 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!
Space PercentFiguring 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:
BudgetingBudgets 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.
The Iron Triangle of Early Childhood FinanceThe 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: Full EnrollmentAlmost 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
Strategies
Full Fee CollectionCollecting 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
Strategies
Revenues cover per child costSetting 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: The Cost of Care – Setting Your FeesDeciding 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 FinancingStart Up FinancingCreating 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.
Business LoansUse 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 SubsidiesContact 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 OpportunitiesSaving money adds to your budget and every bit counts. Be sure to maximize your savings using the following resources:
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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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