10 Ways to Increase Profitability for Your Childcare Business 

 

Growing a more profitable childcare business is possible with the right financial strategies. In the following article, we provide an overview of ten actionable ways to increase profitability for your ECE business. Get started with these tips to increase your childcare company’s profitability. 

Optimize Your Staff Schedule

Two common profit-busters we notice among childcare businesses are overloading the staff schedule and overpaying staff members. 

First, you want to be sure you are not scheduling too many staff members on any given day at your childcare center(s). This happens quite often when the center director has complete control over the staff schedule, tending to add more people than needed, especially during busy drop-off and pick-up times at the beginning and end of the day. Instead, business owners should oversee staff scheduling and work with directors to optimize the schedule. Do this by combining classrooms where needed to reduce staff needs. 

Second, find a balance between paying staff members a wage that is fair and a wage that is appropriate for your given market. You certainly don’t want to underpay your childcare team, but you also don’t want to tie up too much of your budget paying wages that far exceed salaries relevant to your local market. Do market research to determine a reasonable wage for various staff positions at your Early Childhood Education business. 

Taking care of overscheduling and overpaying issues when it comes to your childcare staff can free up cash and help you increase profitability. 

Minimize Your Tax Burden 

Another common profit-buster is overpaying on business taxes. 

Here are some ways you can alleviate your tax burden to cut costs and increase profitability:

• Work with a qualified CPA who can help you figure out which tax credits and deductions your business may be eligible for. 
• Be sure you choose the right tax structure for your business in order to pay the least amount of taxes possible (S-Corp, C-Corp, LLC, Partnership).
• Consider purchasing or investing in real estate to reduce your tax burden.
• Keep accurate records of all financial transactions, including invoices, receipts, bank statements, and credit card statements. 

To the extent you can reduce your annual tax bill you can ultimately increase profitability for your business. 

Maximize Classroom Revenue 

Take a look at your preschool classrooms. Have you ensured that each classroom is filled to capacity? Doing so will help you maximize potential profit by classroom. 

However, increasing profitability means more than just getting enrollment numbers up. Focus instead on increasing full-time equivalency. In other words, you will want to have as many full-time equivalent children in your program as possible. Read more about calculating and increasing full-time equivalency for your childcare center here.   

Here are a few other ways to maximize classroom revenue potential: 

• Keep you childcare center(s) at 90%+ enrollment.
• Utilize part-time enrolled children to fill in gaps in your full-time schedule. 
• Large centers (125+ capacity) can over-enroll each age group by about 5-10% based on typical absenteeism rates.
• Enroll as many preschool-aged children as possible. Preschool spots do not require as high of a ratio of adults to children as infant and toddler spots, thus these classrooms are more profitable.  
• Be sure you are charging at or near market rates and raise your rates annually. 

Create Additional Revenue Streams 

Consider other ways to increase profitability by tapping into additional revenue streams, including:

• Offer enrichment programs, classes, and camps such as music, art, and STEAM.  
• Rent your childcare center building when not in use, such as for church, classes, camps, events and parties, and so on. 
• Charge one-time fees, including enrollment, registration, curriculum, and activity fees, as well as reoccurring fees, such as late payment and late pick-up fees. 
• Invest childcare profits in real estate to generate passive income. 

Avoid Costly Financial Mistakes 

Financial mistakes can prove catastrophic for your childcare business, so you’ll want to be sure to avoid them at all costs if you want to grow a profitable company. 

Here are a few guidelines for making wise financial choices for your Early Childhood Education business:

• Enlist the help of a qualified CPA for your business accounting needs, including tax preparation and compliance.  
• Keep accurate financial records and keep track of important documents. 
• Separate business expenses and personal expenses. 
• Set aside enough money each month for estimated tax payments. 
• Report all income to the IRS accurately and stay compliant with all laws and regulations. 

These are just a few examples of ways to avoid costly financial mistakes for your business. 

Master Your Budget

If you want to turn a profit for your Early Childhood Education company, then you absolutely must make a budget and stick to it! 

If you are at a loss for how to keep a budget for your childcare business, then reach out to a CPA for help. 

Find example budget templates and learn the different elements of the monthly budget. Use these templates as a guide for creating your own budget spreadsheet. Be sure to update your budget on a weekly or monthly basis. 

Know Your Financials! 

Growing a profitable business starts with understanding your financials. Fortunately, you can gain clarity on your financial picture with the Honest Buck Accounting Know Your Numbers eCourse. Here’s what you can expect to learn from this course:

• Read and understand your financial statements, including the Income Statement (P&L), Balance Sheet, and Statement of Cash Flows 
• Calculate your acquisition cost per student
• Calculate your minimum monthly revenue or minimum number of students required to generate a profit
• Learn how to increase enrollment without overspending
• Identify profit-eating costs and problem areas that can kill profitability 
• Use your numbers to guide strategic decision-making, such as when to increase rates and by how much, and when to expand to new locations or acquire already established childcare centers

Sign up for the eCourse and go at your own pace as you learn how to understand your financials and grow a profitable Early Childhood Education business. 

Protect Your Business Against Recession 

Recessions come and go, and you want to be sure your childcare business can survive when economic times get tough. Here are a few ways you can recession-proof your ECE company, starting today: 

• Stick to your budget, and live below your means. 
• Attack debt, especially high interest debt.
• Build up an emergency fund for unexpected crises. 

Don’t wait until the next recession hits before you protect your business. By then it will be too late. If the childcare center down the street closes, you want to be sure you can stay open and acquire their families should the need arise. 

Save, Save, Save

Expanding on the point above, be sure to prioritize building up a rainy day fund for emergencies. Every month, transfer money into a separate account allocated specifically for savings. Talk with your CPA about which type of account is best for your saving needs. 

Do NOT use the money in your savings account except for emergencies! 

Setting aside money for emergencies will help you protect your monthly revenue and increase profitability. 

Pay Off Debt 

Finally, if you want to build a profitable childcare company, you absolutely must pay down debt. Tackle the highest interest debt first and make extra payments until that debt is paid off entirely. Then pay down the next highest interest debt, and so on. 

Avoid paying interest on credit cards by making timely payments on all credit card balances. 

We hope these 10 tips will help you take practical steps to growing a more profitable childcare business. 

Let the CPAs at Honest Buck partner with you to build a strong financial foundation with our professional accounting services. Reach out to our team to schedule a free consultation. Contact us today.