Did you get into the daycare business without knowing how to run a business? Do you mostly know what you’re doing but need help keeping track of the numbers and the finer details? Either way, daycare accounting software can help make your life easier, but it isn’t a total replacement for working with a CPA. Keep reading to learn how software can help you, and when you should work with an accountant.

Daycare Accounting Issues

Like any business, daycares face a broad range of accounting issues. To help you tackle them, you can choose between popular general accounting software, like QuickBooks, or you can look for daycare management software with accounting tools built-in. General accounting software will usually have more powerful accounting tools, but it will take more work to set it up how you need it. Dedicated daycare management software may have accounting tools as a secondary feature and may not do enough to be your standalone accounting solution.

When you’re looking at daycare accounting software, you should consider how it can help you with the following needs.

Payroll

Payroll includes a variety of functions.

• Paying your employees.

• Tracking their hours as well as vacation and sick time.

• Depositing and reporting employment taxes to the IRS.

• Filing W-2s at the end of the year.

Payroll is largely standardized across businesses, but it’s important to remember you could face large fines if you miss deadlines or don’t get it right. Unlike income taxes, payroll taxes have reporting and payment deadlines throughout the year, so it’s not something you can put off until April.

If you’re running a daycare out of your home and have no employees, you may still have payroll tax obligations if you pay yourself through an LLC or corporation. Otherwise, you’d need to make estimated tax payments based on your business profits.

Expenses and Accounts Payable

When you buy food, toys, arts and crafts supplies, and other goods, those expenses are usually tax-deductible. Similarly, payments for services such as field trip tickets or utility bills will also usually be deductible. Your daycare accounting software should help you track expenses, save receipts, and keep track of bills you need to pay so you have everything you need to claim your deductions at tax time.

Service Fee Income

Whether you bill hourly, daily, or monthly, you need to keep track of it all. Just using bank deposits can probably get your taxes done properly, but the right software can help you professionalize your operation with the following features.

• Create itemized invoices for parents.

• Accept electronic ACH and credit card payments.

• Use automatic payments to make life easier for everyone.

• Easily prepare receipts parents need to claim tax credits.

• Keep track of deposits or prepayments.

• Automatically record your income in your accounting books.

Sales Tax

Sales tax does not apply to Washington daycare services. However, if you also sell physical goods, such as toys or shirts, you will usually need to collect sales tax.

Daycare services aren’t exempt from sales tax when they purchase goods for use in their business. If you buy goods from outside of Washington and don’t pay sales tax, you are legally required to report and pay the tax on your own.

Income Tax

Your accounting software should give you the information you need to complete your income tax return, but it usually takes a little extra work. One of the biggest needs is the ability to convert your books between cash and accrual accounting if you use different methods for taxes and regular bookkeeping. You’ll also need to be able to match your expenses to the correct line on your tax return as well as identify which expenses qualify for any special deductions or credits.

Financial Reporting

You’ll also want to be able to generate income statements, balance sheets, and cash flow statements on a monthly, quarterly, and annual basis. This lets you know how your business is doing, and you can compare your performance over time.

More advanced reporting options might let you see how your income breaks down by family, location, membership tier, or other metrics you want to look at. The more information you have available, the better informed your business decisions can be.

Daycare Accounting Software vs. Working with an Accountant

If you can find a daycare accounting software package with all of the above features, you can save hours of time each week. However, there are still times when you’ll want to work with an accountant.

What Software is Good At

Here’s where software helps:

• Automating routine and repetitive tasks

• Syncing data between your bank accounts and different software programs instead of needing manual entry

• Avoiding data entry and mathematical errors

• Using alerts and reports to tell you when you need to look at something

What Software Isn’t Good At

Here’s where software falls short:

• Not being tailored to your specific setup out of the box

• Lack of ability to properly handle infrequent or unusual transactions

• Not having human judgment to identify when something isn’
  t right

What an Accountant Does

Here’s where an accountant helps you:

• Sets up software to match your business needs

• Identifies accounting needs and problems you would have never been aware of

• Provides proactive planning services and suggests improvements

• Gives a level of assurance that you’ve done things properly and won’t have the state or the IRS coming after you

Bottom Line

Accounting software will save you a lot of time and money. A good accountant will save you the frustration of learning how to use the software and setting it up. Your accountant can also use their accounting and business knowledge to save you money in ways you never even considered (you don’t know what you don’t know). Therefore, for best results, find a good software package you can use for the day-to-day and a good accountant who you can call on for help throughout the year.

Talk to Honest Buck

Honest Buck is a full-service accounting firm in Seattle. We offer a range of options from bookkeeping help using popular accounting software to tax planning and consulting services. To learn more about how we can help with your daycare’s accounting needs, schedule a consultation now.