How to Create a Budget For Your Child Care Center
Whether we’re talking about your personal life or your business, budgeting is a critically important financial skill. Although budgets aren’t everyone’s favorite, they are essential to ensure you can afford the things you need, and prevent leaking money to things you don’t.
Creating a budget not only gives you a sense of control over profit margins by reigning in spending and tracking revenue vs expenses but it will also set you up for growth and help you plan for potential emergencies as you continue to grow your business.
Although we all know budgeting saves money and relieves financial stress, many business owners are so intimidated that they don’t ever start one. The best time to build a budget is when you are creating your business plan but the second best time is to build one today! Today I’ll help you start or improve your budget by walking you through a simplified budget process which follows these five steps.
1. Calculate your Revenue
Start by determining your total monthly revenue. To determine gross revenue, add up all the ways your center brings in money. This includes things like tuition, fees, snacks, grants, rental income, or any other money that is coming into your center. If you use child care software like Sandbox this can be found effortlessly by running a revenue report.
The great part of a child care center is that revenue is more predictable than many other businesses. You can find an average after calculating a few months or just take a reasonable month as your sample revenue. Just keep in mind that this number will change depending on enrollment numbers and other changes.
2. Determine Monthly Costs
The next step is to determine your monthly expenses. These are things like payroll, building mortgage or rent, electricity, internet, taxes, snacks or meals, childcare supplies, licensing costs, and insurance. As you work through this you may notice that there are some fixed costs like rent, and others that are more variable like utilities or taxes. Try to find a monthly average that is somewhere between your highest and lowest months so that it averages out over the year.
3. Determine Profit & Loss
If you completed the first two steps this section should be pretty easy. Just take your gross revenue and subtract your total costs. Any money left over is your profit for the month. This profit will give you cushion in your budget and help you when it comes to more variable expenses, or when deciding whether to increase staff compensation. Of course if you don’t have any money left, or your gross revenue is smaller than your costs, it’s time to re-evaluate where your money is going and plan to get profitable as soon as you can!
If you have yet to make a profit with your center don’t sweat it, you’ll get there! It can take up to three years to get your center to a place where you are bringing in monthly profits. That said, if you’re not profitable, you will want to budget carefully and avoid high interest costs by securing lower interest childcare financing if necessary.
4. Create an Emergency Fund
One of the most important parts of budgeting is being prepared for unexpected emergencies. The last thing you need during a crisis is a bill you can’t afford. Set aside a monthly budget for emergencies that accumulates over time. This budget can be used for any unexpected costs that come up, new procedures or costs in unprecedented times, or even for upgrades or one-time purchases if it becomes overfunded after a while. This will help eliminate avoidable financial stress when surprises come your way (and they will).
I suggest starting with at least $5,000, with the goal of raising the fund to $10,000 as quickly as possible. Of course the size of your emergency fund may differ significantly depending on the size and structure of your business.
5. Fill out your Budget
Once you have an idea of your gross revenue, total expenses, profit margins, and have set up an emergency fund, it is time to fill out the rest of your budget. Use the numbers from the past year to project a year ahead. This will give you an idea of where your center is headed and how your profits will grow overtime. If you plan any enrollment expansions you can include this in your budget as well. Budgets will vary based on your business model, location, and other factors but feel free to browse the web for sample budgets or other examples to help guide you.
As you are working through your yearly childcare budget consider seasonal trends as well. Does enrollment go up or down in the winter or summer? Are you closed for summer break? When do you accept deposits for the next school year? Do you have seasonal costs for supplies or utilities that will need to be planned for? You will want to keep all of these things in mind as you fill out your budget so that you can plan for the future as accurately as possible.
Daycare and Childcare are increasingly popular choices for busy parents and can be very profitable. That said, they can also have high costs due to licensing requirements, high labor costs, and other location-specific factors. This makes having a budget and forecasting the future a huge part of owning and managing your own child care center. In order to optimize your profits it is critical to plan ahead, stick to a monthly budget, and cut unnecessary costs wherever possible.
As I said earlier, the best time to make a budget is when you are creating your business plan but the second best time is right now, so get started on your budget today and take control of your childcare finances!