When it comes to a child care provider’s mission, we know it includes elements such as providing high-quality learning and care, offering a safe environment, being inclusive and more. But there’s an unwritten part of the mission that many skip over – the idea around having a sustainable business model that enables us to bring our mission to fruition.
In a recent webinar from Early Childhood Investigations, Karen Foster-Jorgensen, Chief Inspiration Officer at ChildCareDirector.com and author of “It’s More About Strategy Than Math,” provided practical guidance for how child care businesses can implement strong financial processes to support their missions.
“Our field is always afraid to talk about money,” said Karen. “But finance is the foundation on which we build our quality mission. We need to reframe our industry and business models in new ways to achieve our missions with new mindsets.”
To do this, every child care center should leverage a business model – or a series of strategies that work together to make a business successful – to serve as the foundation of their operation. A business model has six categories, including Policies, Revenue, Budget, Staffing, Facilities and Monitoring. Let’s dive into each category and what they look like through a child care provider’s lens.
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Policies
Your policies should be created to support full enrollment and full, on-time payments. Here are examples of policies to accomplish that:
- Enrollment policies that maximize the enrollment levels your team has identified
- An active wait list that fills open child care spots seamlessly
- Tuition deposits must be received to hold child care spots
- Part-time enrollments can be paired so each slot brings full tuition
- Withdrawal notices match the amount of the original tuition deposit
- Tuition is received in advance of service
- Full tuition is collected on time through automatic withdrawal (learn more here)
- Policy to address late tuition or emergency gap funding
Revenue
Use “Gap-Per-Slot” concept to ensure you cover all costs per available child care slot. Gap-Per-Slot is a concept tool by which you calculate the financial cost to deliver each unique class/tuition group in your program. Here’s an example of what that looks like:
Budget
A budget is built on achievable percent occupancy within the 75-85% range or higher. Costs per slot rise rapidly when fewer slots are filled, so achieving goal occupancy rates will help you cover core costs for administration, business operations and facilities.
“The last slot in each class makes the difference between an organization that barely survives and one that thrives,” Karen said.
To make her point, Karen gave the following example: if average revenue per slot is $1,000 per month, then one more slot filled in each of six classes is $6,000 per month or a whopping $72,000 per year.
Staffing
Total staffing costs are typically in the range of 60-65% of revenue.
“In a service business like ours, staffing is our largest and most valuable investment in our quality,” Karen said.
Staffing costs include wages, taxes, benefits, unemployment insurance plus any additional required or optional staffing costs depending on your location or your choice.
Facilities
Facilities, infrastructure, technology and innovation are typically in the range of 15-20% of revenue. That means if staffing is 65% and facilities are 20%, we have just 15% of revenue for the rest of business operations. This is why keeping track of every expense is critical.
Monitoring
Speaking of tracking, it’s not just about looking at your bank statements. It needs to be an intentional process that includes forecasting and reporting. For perspective, think of your budget as the roadmap for where you plan to go on vacation and financial reports as the trip pictures, showing where you have been and how great your journey was.
“It’s critical that child care providers have a seamless financial and recordkeeping system that tracks analytics from the first time a family looks at a center’s Facebook page or website until they happily graduate from the program years later,” Karen said. “This is where management systems and software come in.”
Management Systems and Software
Child care management software can help centers address a wide range of administrative and operational needs, including:
- Engagement – serve future, current and graduated families
- Marketing
- Tours, events and fundraising
- Communications with families
- Business Management – know your business status in real time
- Enrollment and family orientation
- Family records and accounts
- Collect and track tuition
- Financial accounting, budgets, statements and cash flow
- Payroll and bill payment
- Classroom Management – support quality for teachers and children
- Ratios and group sizes
- Curriculum planning and sharing
- Meal planning and tracking
- Security and Safety – people, facilities, technology
- Contactless check-in
- Child care security hardware
Mission to Model
When child care providers can operate using a sustainable financial model, that’s when they can start taking action to address the important elements of their mission, which could include:
- Raising wages – attracts and retains an effective staff team, the most important element of quality.
- Raising enrichment – builds a stellar early education program.
- Hope – becomes the organizational mindset of optimism and humble confidence with every small success step a child care provider takes.
To learn more about strategies to build a sustainable financial model that supports your child care mission, watch the webinar.
