As stated by the U.S. Bureau of Labor Statistics, child care businesses will have some of the fastest employment growth rates of all industries in the year 2020. This presents opportunities for those aiming to become a leader in regard to early childhood education. It’s clear that the demand for early childhood education and daycare is booming ? but is it profitable?
It’s been reported that U.S. daycare businesses showcase a healthy profit margin and have relatively consistent sales growth. However, not all early childhood education businesses thrive.
In order to become a true leader in this industry, you must address ALL aspects of your business. While your school or daycare may be set-up to help children grow and develop, and you may be a leader in regard to the services and level of care you provide, if you do not effectively manage your finances, you can quickly go out of business.
What It Takes to Become a Leader in Early Childhood Education
As stated by the Federal Interagency Forum on Child and Family Statistics, in 2008, there were more than 73 million children under the age of 18 living in the United States ? a number which has since risen to approximately 80 million.
This means that every day, millions of Americans drop their children off at childcare centers or preschool, and in terms of high-quality early childhood education, the need has never been greater. However, there appears to be a gap in the industry ? one that provides opportunities for businesses and their investors.
Currently, all states have set regulations and licensing standards in order for an early childhood education business to legally operate in that state. Although these regulations provide a baseline standard, they mainly focus on protecting the child from harm in comparison to the child’s overall development and educational experience.
This is why leaders in the early childhood education industry focus their attention on the children’s well-being, in addition to quality engagement, effective learning strategies, age-appropriate curriculums, teacher-child relationships, and stimulating environments.
Although it is imperative that you provide a structured, educational environment, there’s no denying that one of the most critical aspects of running an early childhood education center is a balanced, well-managed budget. Regardless of how great the services are you provide or how incredible your staff members are, if you do not bring in more money than you spend and are not aware of your financial health, you will not survive.
To become a true leader in early childhood education, you need to address the variables discussed above while focusing on the accounting aspect of your early childhood education business. Without implementing effective management strategies and good budgetary practices, the long-term stability of your business will become threatened.
Feeling Overwhelmed by the Financial Aspects of Your Early Childhood Business? Implement These 4 Steps
For many childhood educators, their passion lies in the programs that are offered to children. They strive to help children grow and develop ? and although their efforts are important, those who do not address administrative management, will unfortunately not succeed.
From financial record-keeping systems to payroll, sales tax to forecasting, these processes are never-ending. They require consistent attention and in many cases, delegation. In order to take control of your organization’s finances, working towards a leadership role, focus on the following four steps.
Step one: Create a budget
When you truly understand the financial side of your early childhood education business, you will significantly strengthen all aspects of its operations and development. By creating a budget, you will instantly increase awareness and in turn, improving decision-making.
In order to do so, you will need to have a handle on what your estimated income will be, in addition to estimated expenses. When developing your budget, focus on:
- An approximate timeline (i.e. a one-year budget, monthly budget, quarterly budget, etc.)
- Estimate the number of children who will be served during this time (refer back to licensing standards to consider available space, the number of staff required, etc.)
- Estimate anticipated revenue
- Estimate approximate expenditures, including all fixed expenses (utilities, insurance, mortgage, etc.), salary expenses, and everything else (marketing costs, supplies, etc.)
Step two: Update your business plan
Although you’ll cover a wide spectrum of topics within your business plan, the majority will relate back to finances. In fact, a business plan is one of the most critical elements when applying for a grant or loan. By offering a comprehensive plan, you can better communicate what your mission and goals are. It will also allow you to reflect on areas that require more attention.
In your business plan, include:
- An executive summary
- Your organizational capacity
- If applicable, a description of your proposal
- Market analysis
- Marketing strategy
- Operations plan
- Financial analysis
- Any supporting documents which highlight the sections above
Step three: Understand and review all financial statements
Even if you outsource your accounting needs, you should be aware of your records in relation to your financial position. This will allow you to monitor any major changes and to better plan when aiming to develop future programs.
These statements will include:
- Your income statement ? This will allow you to analyze all sources of funds, helping you understand exactly what you earned in relation to costs. Your year-to-date income statement will also allow you to compare actual figures against your budgeted revenue/expenses.
- Balance sheet ? This will cover your liabilities (debts, taxes payable, etc.), assets (prepaid expenses, accounts receivable, etc.), and net worth (total assets- total liabilities).
- Cash flow statement ? This will cover all cash inflows you receive from ongoing operations, as well as any external investment sources. This will help you better understand the financial health of your business across time. Your cash balance sheets should be positive.
Step four: Seek professional assistance
If you’re passionate about caring for children, providing them the best possible educational experience, yet struggle to stay on top of accounting, it’s time to outsource. Learn more about why you should consider an outsourced chief financial officer here, as well as the types of service available to your growing early childhood education business.
Ready to chat? Schedule a call to discuss your unique accounting needs today!