Pricing Your Child Care Services

Transcription

1 Pricing Your Child Care Services Direct Costs Worksheet Exercise 4-3: Direct Cost Worksheet Total costs per day / # of children = Cost per child per day Breakfast $ $ Snack $ $ Lunch/Supper $ $ Salaries (other than $ $ director and assistant director) $ $ $ $ Payroll taxes (for above $ $ salaries only) $ $ $ $ TOTAL costs per child per day $ # of days per week open TOTAL direct costs per child per week $ (=total costs per child per day x # of days per week)

2 Cash Flow Projections for In-Home Child Care Cash flow projections show what cash you anticipate coming into the business and what cash you anticipate going out of the business on a month-to-month basis. Here are some tips to think about when you prepare your cash flow projections: Cash Flow Tips Be conservative lower your anticipated income and increase your anticipated expenses. If you can make the figures work by being conservative, you know you can make them work if you do better than that. Don t expect to be at full capacity immediately, it may take several months. Always factor in a vacancy rate of at least 15% even after your start-up phase. Families move, parents lose their jobs. If you are licensed for eight children (including three afterschoolers), always plan to have a few vacancies. Remember that it may take 3-9 days to receive government reimbursements and that if you are a start-up you will be reimbursed at the rate of a 1-star child care for at least the first six months that you operate. It s best to start your business in August or January. Beware of 2 nd and 3 rd shifts. These rarely make money. Caring for infants may increase your revenues. Don t rely on donations. Remember that your owner s draw is always your biggest expense and should be included in your cash flow projections. If you hire employees and need to pay payroll taxes, do not borrow against payroll taxes. The IRS can close down your business and charge high penalties if you fail to pay your payroll taxes. Always include reserves in your cash flow. You never know when your child care van may break down or your playground equipment will have to be replaced. Keep track of all the assumptions that you are making as you create your cash flow projections. Here are some commonly made assumptions: o The number of children who will enroll in your child care o The number of stars that you will have when you receive your star rated license o The amount of your rates What can you do if your cash flow projections project a deficit? o If you are not at full enrollment, increase your marketing efforts to fill the slots in your child care. o Collect money from any parents who have not yet paid you for your services. o Evaluate your costs. Are there any ways you can lower your direct and indirect costs? o Charge more for your services.

3 Cash Flow Projections for In-Home Child Care Exercise 4-7: Family Child Care Cash Projections Review this cash flow projection. Do all of the figures make sense to you? What recommendations would you make to this child care provider based on this chart? Projections Jan Feb Mar Apr May Jun Beginning Cash $ $1,22 $1,134 $769 $39 $272 Cash Receipts: Registration fees Tuition Tuition subsidies Food program revenue Owner s investment Loan Other TOTAL Cash Available $ 1, ,22 $5,187 $ 1,794 $3,526 $ 2,392 $4,38 $ 3,8 $4,869 $ 4,186 $5,88 $ 5,382 $6,166 Cash Disbursements: Accounting/Legal Activity supplies Benefits (savings) Cleaning/First Aid supplies CPR/First Aid Training Dues Equipment Insurance Licensing fees Loan Payments Meals Marketing/advertising Mortgage/rent Office supplies Owner s draw Postage Professional development Repairs Start-up costs Subscriptions to publications Telephone Transportation Utilities TOTAL Disbursements $ ,88 4 $3,967 $ ,15 4 $2,392 $ ,725 4 $3,269 $ ,415 4 $4,479 $ ,415 4 $4,816 $ , ,415 4 $5,612 Ending Cash $1,22 $1,134 $769 $39 $272 $554

4 Month Beginning Cash Balance REVENUES Registration fees Private pay tuition revenues Child care tuition subsidies Food program revenue Other revenue (T.E.A.C.H.; parent fees) TOTAL Revenues Loan Amount TOTAL Cash Available EXPENSES Owner s draw Assistants/other staff Benefits (and payroll tax if necessary) Food Telephone Utilities Mortgage/rent Educational supplies/equipment Insurance Office supplies Advertising License fees and dues Transportation Training Accounting & legal Repairs & maintenance Property taxes Loan payments Other expenses TOTAL Expenses NET PROFIT (LOSS) Cash Flow Projections for In-Home Child Care Cash Flow Projections & Analysis Exercise 4-8: Cash Flow Projections On pages fill in the cash flow projections for your child care business for the next 18 months.

5 Month Beginning Cash Balance REVENUES Registration fees Private pay tuition revenues Child care tuition subsidies Food program revenue Other revenue (T.E.A.C.H.; parent fees) TOTAL Revenues Loan Amount TOTAL Cash Available EXPENSES Owner s draw Assistants/other staff Benefits (and payroll tax if necessary) Food Telephone Utilities Mortgage/rent Educational supplies/equipment Insurance Office supplies Advertising License fees and dues Transportation Training Accounting & legal Repairs & maintenance Property taxes Loan payments Other expenses TOTAL Expenses NET PROFIT (LOSS) Cash Flow Projections for In-Home Child Care Cash Flow Projections & Analysis Exercise 4-8: (continued)

6 Month Beginning Cash Balance REVENUES Registration fees Private pay tuition revenues Child care tuition subsidies Food program revenue Other revenue (T.E.A.C.H.; parent fees) TOTAL Revenues Loan Amount TOTAL Cash Available EXPENSES Owner s draw Assistants/other staff Benefits (and payroll tax if necessary) Food Telephone Utilities Mortgage/rent Educational supplies/equipment Insurance Office supplies Advertising License fees and dues Transportation Training Accounting & legal Repairs & maintenance Property taxes Loan payments Other expenses TOTAL Expenses NET PROFIT (LOSS) Cash Flow Projections for In-Home Child Care Cash Flow Projections & Analysis Exercise 4-8: (continued)

7 Determining Costs Summary Exercise 4-9: Happy Faces is a small family child care home owned by Mrs. Johnson. She is currently serving pre-school children and is open five days a week from 6:3AM to 5:3PM. While the children are happy and the day care has just received a 5-star license, Mrs. Johnson just doesn t know if she is making money. She hasn t had a vacation in years and would really like to take a trip to California to visit her sister, but she can t imagine where the money will come from for the trip. She just barely seems to be getting by. She talked it over with her husband and if she can save $6 by December they can fly to California for Christmas. It is currently the beginning of January, so she has a year to save. Mrs. Johnson gives you a call, since you are known for operating a very efficient family child care operation. Six months ago Mrs. Johnson heard you speak at the Family Child Care Association meeting on the importance of the business side of child care. In your phone conversation with Mrs. Johnson you gladly agree to help. You know if you can get Mrs. Johnson to start looking at her operations then maybe she will stay in business. You recognize that each year many family child care providers fail because of bad financial management. You ask her to prepare a list of expenses that she incurs in her business, and the time period associated with those expenses. You also ask Mrs. Johnson to provide you with her fees charged per month for one child and the number of children she serves. (Mrs. Johnson already knows how to figure the percentage of her home that is used for child care, so the expenses she sends you are just for her child care.) You plan to analyze Happy Faces by looking at four areas: 1. Direct costs 2. Indirect costs 3. Monthly budget 4. Break-even With this information you believe that you can help Mrs. Johnson on the road to total financial management. Mrs. Johnson agrees to fax all the information to you and schedules a visit with you one week from today to discuss Happy Faces finances. You receive the attached fax (pg. 68) from Mrs. Johnson. After you have evaluated her finances, what is your recommendation to her?

8 Determining Costs Summary Exercise 4-9: (continued) Find the expenses of Happy Faces Child Care: Expenses Cost Time Period Per Month Advertising $1 month Craft Supplies. per day, per child Accounting/legal 115 year Office & Cleaning supplies 1 month Payroll taxes 21 month Insurance 575 year Breakfast.98 per day, per child Property taxes 138 year Owner s salary 1,15 month Part-time Salary 138 month Mortgage/Rent 2,7 year Utilities (water, electricity, gas, etc.) 31 month Association dues 69 year Equipment (computers, playground set, 184 year etc.) Educational supplies year Telephone 17 month Lunch 1.78 per day, per child Training classes 15 year Transportation (1 miles a 5.1 week.51/mile) Repairs & maintenance 6 month Snack.52 per day, per child Other Information: Children served # Cost Infants 1 $92 per week/per child Preschool/private pay 2 $86 per week/per child Preschool/subsidy 2 $86 per week/per child

9 Key Points When you start-up your business there will be many one-time expenses called start-up costs that you need to pay, such as buying equipment and supplies. In order to get licensed you may need to make some renovations to your home. Your facility will determine the number of children for which you can be licensed and the quality of your child care. When your business is up and running you will incur both direct and indirect costs. o Direct costs are costs directly related to the service you provide (i.e. food, craft supplies, etc.) o Indirect costs are costs related to the overall running of your business (i.e. rent, insurance, etc.). These are costs that you have to pay regardless of how many children you are caring for. To determine your indirect costs associated with the use of your home for your business you will need to calculate your business use of home percentage. This percentage is based on the number of hours you run your business and the amount of space in your house that you use. To determine your prices and break-even point you need to have at least a good estimate of your indirect and direct costs. o Your break-even point is the number of children you need to serve in order to cover your costs o Your pricing must be high enough to at least cover your indirect costs and direct costs per week A cash flow projection shows what cash you can anticipate coming into the business and what cash you anticipate going out of your business on a month-to-month basis. When calculating your future cash flow projections, remember that it is always better to be conservative in your revenue estimates and to overestimate your anticipated expenses. If you can make the figures work by being conservative, you know that you can make them work if you do better than that.