Having a good grasp of your child care center’s cash flow and knowing how to maximize your income are critical to the success of your business.

At Procare’s virtual The Business of Child Care Conference held July 21, Audra Wilson-Russell, a certified public accountant who specializes in helping child care providers and is the owner of Wats CPA, outlined the top five cash flow management tips you need to run a successful child care business. 

She also gave tips on creating and tracking cash flow projections, using accounting technology and implementing strategies to increase net profit.

Let’s dive in!

1: Understand Your Cash Flow

Audra said 29% of businesses fail because they run out of cash.

Remembering that net income does not equal your cash balance. Rather, your net income can be determined by subtracting your expenses from your revenue, something you can see on your profit and loss statements. 

She also explained how to calculate your net cash: take your beginning cash, then add cash flow from your operations, investing and financing. 

You are taxed on your net income, and your ending cash typically is lower than your net income.

2. Create and Track Cash Flow Projections

“Cash flow projections will help you see into the future,” she said.

It means thinking about important questions, such as whether you can cover your overhead costs and how much you can pay yourself and your teachers. 

You also must make long-term plans and ensure you have the cash to invest in your business or expand locations.

3. Use Accounting Technology

Audra said two big players in accounting technology are Xero and QuickBooks Online. Both are online platforms that allow you to connect them to your bank accounts so information is regularly flowing to the accounting sites. 

Don’t do invoicing by hand, Audra said. She suggested checking out Procare Solutions and its connections with QuickBooks Online.

For payroll, Procare partners with Gusto to offer a fully integrated payroll platform.

Procare Desktop offers a downloadable add-on that allows you to export your family accounting, agency accounting and payroll transactions to a file that can then be imported into QuickBooks as a journal entry. 

And Procare Online has a direct integration with QuickBooks Online.

Audra said the syncs between Procare and QuickBooks Online save you the time and the work of importing data yourself. (And she pointed out that she was not referencing QuickBooks Desktop, saying the online version is more efficient.)

She said to use bank feeds to connect accounting software to your bank accounts. She also suggested setting up a chart of accounts in a way to optimize your deductions and to connect accounting software to useful apps.

“With online systems, it’s real-time information at your fingertips,” Audra said, saying you can customize your accounts to the way you need to see them. 

For apps, she suggested using bill.com and Melio to pay bills. The apps remove the paper-heavy flow involved with bill-paying, and you can snap a photo of a bill on your phone and code it into accounting software. 

“You can click a button and get your bills paid,” Audra said. “It’s really nice.”

Audra partners with Gusto, which provides payroll, benefits and other human-resources services. She does not recommend doing your payroll by hand on paper.

With Gusto’s payroll program, you can easily onboard employees, she said. You send an email to employees, who then can enter information for their taxes as well as direct deposit. Gusto also handles making your payroll tax deposits and files quarterly tax returns, in addition to doing year-end reporting, including for contractors.

For expense management, she likes Receipt Bank (now renamed Dext) and Expensify, especially if an employee uses a company credit card.

When teachers buy supplies using a card, they can upload a photo of the receipt and there’s an option to sync it to QuickBooks Online. This especially can be handy if you’re audited and need to pull an expense because the expense has the receipt attached to it, she said. 

4. Implement Strategies to Increase Net Profits

Ways to increase your revenue include raising prices and assessing whether you’re being competitive. Increase your enrollments if you can and add a new service or product, such as offering school aftercare.

And it’s important to find ways to decrease your expenses as well. Trim the fat, Audra said — non-essential expenses don’t grow revenue. Price shop for commodities and invest in technology. Use social media for marketing and see if there are ways to reduce the number of hours your staff works. 

To accelerate cash collections, use online invoicing and accept debit or credit cards for payments. Set up recurring payments and use a mobile device for on-the-fly payment collections — that way you’re ready to take a payment at any time, even from a parent in the pick-up line.

“You want to have all payment options available,” Audra said. 

5. Meet With Your CPA

Hire a trusted CPA to help you navigate your cash flow and finances at your child care center, Audra said. Set targets and goals to achieve revenue targets, gross profit targets, enrollment numbers and what your cash reserve balance should be. 

Know your key performance indicators, including enrollment shortfall revenue, employee turnover, payroll expenses as a percentage of your revenue and your program expenses as a percentage of your revenue.   

How Procare Can Help

Managing center operations can be time consuming – and time is money.  Administering payroll can be a cumbersome task, particularly for child care businesses wanting to focus their time on the children in their care. 

The partnership between Procare and Gusto simplifies complicated financial processes for you.

The Procare-Gusto integration allows customers to process payroll for an unlimited number of employees in all 50 states, as well as facilitates direct deposit. Gusto syncs with Quickbooks, Xero and Freshbooks, helping streamline accounting operations. 

Procare clients can leverage Gusto to administer their payroll benefits and add-on services all in one place – making it easier to manage 401(k), workers’ comp and HR needs. 

Have questions? Procare is here to help. Request a demo today!

And if you’d like to hear more from Audra, she’ll be hosting a Procare-sponsored webinar on how to get your child care center ready for tax season at 1 p.m. ET on Nov. 17.

Click here to register to attend this free webinar.