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You will
need to set up an efficient system to manage the many aspects of running a small
business. Keep organized records of all your expenses and income. Maintain a
separate checking account for business expenses. Save receipts, and spend time
each day or week to record information. A good record-keeping system will
provide the information you need for tax purposes, and will allow you to gauge
your income and expenses on a regular basis. Here are some tips for the major
business items that should be set up before you open your doors for business.
You can click on the following links to
jump to the information about that subject.
Your choice of legal structure (e.g., nonprofit, tax-exempt corporation;
religious affiliation; for-profit business; or employer-sponsored center) will
affect your total budget and the way the center is run, so it is important to
consider this carefully before starting your center. Seek legal advice as you
make these important business decisions.
No aspect of managing your child care program will be more important than
tracking your budget. You'll need one type of budget for your start-up
operations, and another once your center is up and running.
Start-up Budget
A start-up budget will help you to plan and project the expenses and
income for your center's initial months of operation, and should include:
 | One-time capital expenses, such as installed playground equipment,
furniture, indoor equipment and materials, computers, kitchen supplies, etc.
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| Renovations to make the space suitable for child care and to meet all
licensing regulations
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| Legal fees, licenses, and permits
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| Rent deposit and insurance
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| Marketing and advertising costs
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| Staff time before the center opens for business
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| Cash to cover start-up expenses, food, and supplies for the first three
months
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Operating Budget
After you establish a start-up budget, you will want to create an
operating budget for running the center. Personnel costs (salaries and benefits)
for a high quality center are usually 75 to 85% of the total budget. Keeping
control of your budget requires accurate record-keeping. Some centers
(especially nonprofit educational corporations) have an annual audit completed
by an accountant. If your center has a governing Board, you may have a
treasurer. You may also hire a part-time bookkeeper or accountant to balance the
center's books, pay outstanding invoices, bill parents, cut payroll checks,
submit state reimbursement paperwork, and file payroll withholding and other
taxes.
Important elements to track:
| Attendance and enrollment records, including part-time and full time
enrollment, and fees to be charged for each family
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| Income records: parent fees, outside donations, grants, government
reimbursements, subsidy payments, etc.
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| Petty cash fund
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| Receipts for all expenses
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| All payables, including insurance, rent or mortgage, utilities, capital
expenses, furniture, office equipment, classroom equipment, supplies
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| Payroll, including tax withholding, Social Security, worker's
compensation, and other payroll expenses
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| Tax statements and records
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| Bank statements, loan statements
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Financial
reports made to parents (for nonprofits) and to the Board, and/or to
owners/shareholders (if applicable) |
The ability to hire and retain excellent staff -- with appropriate
education and experience, who enjoy working with young children and are
dedicated to their well-being -- is a vital part of running a quality child care
program. Managers who know how to praise sincerely, encourage and motivate their
staff, and deal with problems quickly, directly, and respectfully, can build a
strong and dedicated staff.
The Director should have training and experience in early childhood
education, a knowledge of child development, and the ability to manage all
aspects of the center. While minimum educational requirements for teachers and
directors are determined by state regulations, additional requirements are
determined by your preferences and goals for the center.
The Director's Role:
| Hire and supervise all staff members
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| Keep all records and reports, including financial, personnel, medical,
individual child and family files
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| Purchase supplies and equipment
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| Communicate with parents, and serve as facilitator between teachers and
parents
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| Organize and delegate tasks in the center on a daily basis
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| Involve the community in the center; serve as the liaison to the
community
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| Work with teachers on developing curriculum (if there is not an
Educational Coordinator)
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| Facilitate staff, parent, and Board meetings, and center-wide events
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| Plan for staff development and training
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| Oversee compliance with all state and federal licensing regulations |
The Teacher's Role:
| Provide a nurturing, secure environment for children
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| Communicate
with parents daily, and prepare |
| for and participate in parent-teacher conferences
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| Create and implement curriculum and daily activities for children
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| Maintain records of each child's development and progress
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| Attend staff meetings
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| Participate in ongoing professional training and development
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Some centers hire Teachers' Assistants or Aides (to assist teachers in the
classrooms) and Educational Coordinators (to focus on the learning program and
supervision of teachers) if the director does not have experience in early
childhood education. Some centers employ consultants (e.g., social workers,
nurses, or physicians) whom they can call upon for staff or parent training, or
for consultation on particular issues.
The Selection Process should be conducted by
the director and/or educational coordinator; Involvement of parents and members
of the governing Board should be an option. Notes for the personnel file should
be kept at every stage of the screening and interviewing process, which should
include a phone screening interview, a candidate's visit at the center, a
personal interview, and a reference check. As an employer, you will need to be
familiar with the state and federal laws regarding equal opportunity,
affirmative action, and sexual harassment.
Salary and benefits offered to candidates
should be based on several factors, including community norms for this type of
position, minimum federal and state legal requirements, your center's financial
resources, the local demand for qualified personnel, and the candidate's
qualifications. Additional benefits you may offer include dental coverage,
flex-time arrangements, retirement program, Employee Assistance Program,
disability insurance, paid or unpaid leaves, and a child care discount.
Good staff management and supervision will
help your center attract and retain talented teachers and other staff, and
includes setting clear expectations and goals for your staff, both individually
and as a team. In addition, plan for regular observation, feedback, and
evaluation of your staff. It is sound business practice to have written
personnel policies for all of your staff. You may wish to have written job
descriptions as well. Most employers will have an introductory period of three
to six months, to determine if the employee is a good fit for the job.
Staff retention can be a serious problem in
the child care field, due to relatively low pay-scales and staff "burn
out" from often stressful work. Frequent turnover disrupts children's
ability to form strong attachments to their caregivers, and has a negative
effect on program quality, whereas a stable teaching team allows children (and
their families) to feel secure. It behooves the center's manager to encourage
long-term retention of good staff by practicing the 3 R's: Raises to affirm that
your staff are valued professionals; Recognition, both official and spontaneous,
for the good work they do; and new Responsibilities, to allow your staff to
learn new skills.
Annual reviews should be a formal part of
your staff management program. It is a time to go over progress, goals achieved
during the past year, any training or educational achievements, and other
contributions the staff person has made to the center. The employee should
understand the criteria for review and know, in general, how he is performing.
There should be no surprises in an annual review. If your center's raises are
merit-driven, note on each review the raise's dollar or percentage amount, and
how it was determined. A written evaluation should be given to the employee, and
the employee should have a chance to respond and add to the evaluation.
Training and Development opportunities should
be provided to staff on a regular basis. Staff should receive both in-service
trainings and have the opportunity to attend outside trainings and conferences
(e.g., Early Childhood Development; Communicating with Parents; Cultural
Diversity; CPR).
If
termination of a staff member is necessary, be sure you have kept all
records of proof of poor performance (e.g., annual written evaluations) or
misconduct (e.g., statements by eyewitnesses) in a secure file. If you need to
follow up a termination with a criminal prosecution, this proof will be vitally
important. Many employers offer employees the option of resigning rather than
suffer the humiliation of being fired. Depending on how your center is governed,
you may need to obtain approval from your board or parent members before
terminating any employee.
Tracking Income and Expenses
Income
The primary source of income for many centers is the fees that parents pay
for child care. The fee amounts will be determined in great part by the funding
your center receives. Many centers do not reach full enrollment until the end of
the first year of operation, so it is important to take into account lost
revenue during this period. Also, it is important to plan for lost revenue
during the time after one child leaves the center and another child is enrolled.
Most centers plan on an 85 to 90% utilization rate and calculate fees
accordingly. After you've estimated monthly costs to run the center, you can
calculate what you'll need to charge for each child to cover costs.
The teacher-to-child ratio is generally much higher for infants and
toddlers than older children, so infant and toddler fees are usually
significantly more expensive than preschool and pre-K fees.
Your center's fees should reflect realistic expenses, and should be in
alignment with the fees charged by other centers of similar size and quality in
your community. Many centers collect fees on a monthly basis, and may charge
late fees for tuition paid past the deadline. Some centers bill parents in
installments over the course of the year. Your center should publish and follow
a consistent policy on fees and payments.
Set a schedule for payment (weekly, monthly, or annual tuition
installments). Child care fees vary; some centers operate with a sliding fee
scale based on family size and income, while others depend on parents to pay a
set fee, regardless of income. Many centers give a sibling discount for families
enrolling two or more children.
Track fee collection accurately, including late payment fines or other
supplementary fees, and give parents a regular accounting of fees due and fees
paid. Your bookkeeper or accountant should reconcile the center's income on a
regular basis to make income reporting and tax payments (if applicable) in a
timely manner.
To assist you
in recordkeeping you might want to consider using a ledger spreadsheet similar
to this example
(PDF).
Expected expenses:
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Your own salary and
benefits |
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Staff salaries and benefits
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Educational supplies
and equipment |
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Food and kitchen
supplies |
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Cleaning and diapering
supplies |
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Advertising costs |
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Insurance |
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Repairs and
maintenance for the space you use for children |
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Other: legal fees,
transportation, office supplies, etc. |
| Payroll taxes (federal, state, and sometimes local or city)
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| Rent or mortgage
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| Utility costs, including heating and cooling, electricity, telephone,
and hot water
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| Building repairs and maintenance
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| Staff training and development
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| Office supplies
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| Other: legal fees, transportation, organizational memberships (e.g.,
NAEYC)
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Buying materials and supplies in bulk can greatly reduce costs. Some
centers may form "buying co-ops" to order supplies together. Many
centers control costs by requesting materials through donations, and by
purchasing items second-hand (making sure they are in good, safe condition, and
are not unsafe products that have been recalled.
Calculating your Time-Space Percentage
The Time-Space percentage is the most important recordkeeping number to
calculate for your business. It represents the portion of your home that is
used for business purposes. You will use this number to determine how many
of your expenses that are used for both business and personal purposes can
be deducted as business expenses. These expenses include: mortgage interest,
real estate taxes, rent, house insurance, house repairs, utilities, house
depreciation, toys, play equipment, supplies, and more. If you figure this
out right from the start, your accountant will be able to use this at tax
time. You can download a chart to help you figure your
Time-Space Percentage in
PDF Format.
Taxes
Like any small business, you
will have tax responsibilities. Keep good records to use at tax time. Be sure to
keep all receipts, and to track all income and expenses. When in doubt, check
with your tax consultant or the Internal Revenue Service for current tax
regulations.
Taxes
are an important part of every child care center's budget. For-profit centers
will need to pay taxes on profits, and all centers must file payroll taxes with
the U.S. Treasury/IRS on a regular basis. Most states require payroll tax filing
and payments on a regular basis, as well. Employer tax programs include Federal
Income Tax, Federal Unemployment Tax (FUTA),
Social Security (FICA), State Income Tax, State Disability Insurance, and
Worker's Compensation Insurance. You may wish to hire a qualified bookkeeper or
accountant to ensure that you are in compliance with tax laws. Failure to file
in a timely or accurate manner can subject your center to costly fines and
interest payments.
Deductions include food served
to children in your program; diapers; toys and equipment for children; liability
and accident insurance; supplies (art, cleaning, office, etc.); field trip
expenses; memberships and subscriptions to child care organizations; and
professional development and training.
Partial deductions include use
of your home for business, and depreciation of equipment used in the child care
business (cribs, swing sets, high chairs, etc.)
Your child care income (less
allowable expenses) will give you your net profit or loss. You must report all
income, whether paid in cash, check, or other means; whether it comes from an
individual or the state (if you accept vouchers, for example); and whether or
not you make a profit in any given year (within certain IRS guidelines). Contact
the IRS or a tax accountant to find the proper forms for filing federal, state,
and social security taxes, and for the types of exemptions for which you may be
eligible.
As a
self-employed small business owner, you will be responsible for filing quarterly
federal self-employment taxes. These are usually filed as estimated tax. Failure
to file and make payments on time can subject you to interest and penalties. For
more information, contact us, and you may want to contact the IRS, your state's
Revenue Department, or a tax consultant.
Insurance
Check with your state's
licensing unit and us concerning insurance requirements -- and for suggestions
on a group policy or an insurance agent with experience in child care insurance.
Insurance coverage is essential to starting and running a child care
program. Check with your own insurance agent to be sure your center has ample
coverage. Below are some types of insurance you may need to obtain.
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Bonding
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Covers any employees who may be
dealing with money, and protects the center from theft
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Fire Insurance
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For the building,
equipment, and supplies you own
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Accident Insurance
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Blanket accident
insurance for all the children at the center, or optional coverage for each
child
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Liability Insurance
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Most homeowners have
insurance, but there are special issues related to operating a child care
business in the home. Talk to an agent with child care experience. Your
liability insurance should include coverage for accidents, property damage,
and legal fees related to any claims. You will need liability insurance if
you rent your child care space, and the policy may need to indemnify the
landlord as well as yourself. |
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Automobile Insurance
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If you use your car to
transport children, you will need to obtain additional insurance.
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Contracts and Policies
Set clear expectations about
payments in the parent-provider contract, which will make it easier to talk
about fee issues later. Once the interviews and visits are completed, formally
enroll the child into your program, and discuss any topics you may not have
covered in earlier conversations. Give parents a copy of a signed contract. Some
providers print a brief handbook with information about policies and program
philosophy.
Prior to enrollment, parents
should complete and sign release forms for situations requiring emergency
medical treatment or dispensing medication, and for authorization of individuals
to pick up the child from your program. Montana requires that all children
served in child care facilities have up-to-date immunization records. Infant
Health forms should be signed by the child's pediatrician or authorized heath
official. Keep all forms on file.
Tips when writing your Contracts And Policies:
Your policies are the
foundation of your business. They tell parents how you run both the service and
the financial sides of the operation. Policies are worth a lot of research and
thought because they are the key to profitability. You can ask other providers,
or Child care Link, to find out what policies are used by successful child care
businesses in your area.
Your written policy
statement should include:
| Description of
program philosophy |
| Behavior guidance
policy statement |
| Basic daily schedule
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| Supplies that
parents will bring |
| Your specific
expectations of parents (children will arrive fed and fully dressed)
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| Plans or procedures
for parent/provider meetings or conferences |
| Regularly scheduled
special events (Library Story Hour) |
| Transportation of
children to school and/or classes |
| Special activities
and costs (swimming class, dance class) |
Contracts should
clarify the expectations that providers and parents have of each other. Here are
some "best practices" used by successful child care providers.
| List adults who are
parties to the contract
| Require the
signature of parents and/or guardians who share primary custody of
the child and/or responsibility for payment. When applicable, it is
helpful to ask for a copy of the court documents or parenting plan
relating to child custody issues. (If a non-custodial parent that
does not have legal access to the child, comes to the facility and
wishes to pick up the child, you will need a copy to provide to law
enforcement.) |
| List names of
other adults authorized to drop off or pick up the child. |
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| List days and hours
of reserved care
| You may choose
to charge parents for all of the hours of care that they reserve,
even if they do not use them. In this case, parents are paying for
the "slot" that you hold for their child. |
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| List rates and fees
and payment schedule
| State the time
period that the quoted rates will apply. Many providers adjust rates
July 1 of each year, regardless of the date a child enters the
daycare. |
| List Fees
 | Late pick up
fee by the minute or quarter hour |
| Hourly rate
for hours worked in addition to reserved hours. This can be
higher than your rate for reserved hours. |
| Service fee
for late payment or bounced checks. |
| Supplemental
fees -- You may charge an additional fee for costly extra
features of your service, such as transportation, arts and
crafts supplies, music lessons, and field trips; for an annual
cost such as liability insurance; or a one-time registration fee
to new families. |
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| Specify weekly,
bi-monthly or monthly payment schedules. You may require payment in
advance for each period. You may require a "last month's daycare"
deposit
| List any
third-party payers ( Such as State of MT Best Beginnings Child
Care Scholarships)
| Be aware
of any state child care payment programs, your documentation
responsibilities, program co-payment requirements, and
eligibility requirements. For more information, contact
Child Care Link. |
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| Describe
expectations for scheduled and unscheduled child absences
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| Number of days
per year which a child may miss, free of charge. Any additional days
will be charged. |
| How and when you
expect to be informed that a child will be absent |
| List your
termination of contract policy |
| How much advance
notice do you need, i.e. two weeks or one month? |
| Build a "get
acquainted" period into your contract; for example, two to six
weeks. This allows you and the parents time to determine if this
child care arrangement is best for the child. Either you or the
parents may terminate the contract without penalty during this time.
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| Specify provider
leave days
| List holidays
during which your business will not be open. These can be paid
holidays, included in your fee structure. |
| List the days
during which you will take your vacation leave this year. State
whether you will provide a substitute or if parents are responsible
for finding alternative care. |
| State what you
will do when you are sick (ie. You will call the parents the night
before).
| Specify
substitute care arrangements -- Will you arrange substitute care
for your vacation and sick days OR will parents?
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| Attach emergency
medical information/release form and any required forms needed for
compliance with licensing requirements. |
| Attach a sick child
exclusion policy
| Clearly state
that you cannot care for children with communicable disease. A Sick
Child Exclusion Policy is available from our office.
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Marketing
Good news travels fast, but
as you start up you may find that you have vacancies. Think about different
methods for advertising. First, be sure you keep your provider profile
up-to-date with us. When you have openings in your program, let us know
immediately. When parents are seeking care, we can refer them to your program.
More and more parents are using online marketing and child care referrals, and
you should be ready for these types of referrals when the time comes. With your
permission, parents can obtain a referral to your program through our on-line
referral service. This gives your program marketing exposure 24 hours a day 7
days per week.
Other marketing strategies:
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Place an ad in local
newspapers; make sure your ad stands out, and give concise, specific
information about your program. |
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Print flyers or
brochures to post on bulletin boards in places where parents are likely
to go: grocery stores, children’s bookstores, laundromats, libraries,
workplaces, hospitals, and colleges. |
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Word-of-mouth
referrals -- Encourage parents to spread the word. Stay in touch with
families that have used you as a provider in the past, as they may have
friends or family in need of care. |
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Online marketing --
Spread the word about your family child care home to the wider community
in your area with a website. |
The appearance of your home is
a very important part of marketing your services. The inside of your home should
feel inviting and comfortable. Is the area you use for child care
well-organized? Does it welcome children? Bulletin boards and displays of
children's artwork can give a good impression.
National Accreditation and
Licensing
The National Academy of Early Childhood Programs, a part of the National
Association for the Education of Your Children (NAEYC), conducts accreditation
of child care centers in the U.S. Many centers choose to undergo this voluntary
program to evaluate their standards of care, give recognition to a high quality
staff and program, and let parents know that the standards have been
consistently achieved by the center. To become accredited, a center's director
and staff must work with parents and the NAEYC to meet certain criteria and
fulfill a number of accreditation requirements. Steps include a center's
Self-Study, a Validation by the Academy, and a subsequent Accreditation
Decision.
For more information, contact:
NAEYC
1509 16th St. NW
Washington, DC 20036-4126
202-328-2601
800-424-2460
naeyc@naeyc.org
Licensing
It is essential to understand the licensing requirements in your state
well in advance of starting your new center. We have all the up-to-date
information you'll need to comply with these requirements.
Contact us to get the details on licensing requirements in your state.
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