In Part 1 of this series we looked at what is needed to become licensed and the basic policies you will need to have in place as a small business owner of a family child care.
So let’s look at the budgeting – cost of doing business – now.
A sustainable small business meets the needs of their community with the services they provide. For family child care providers our challenge is to figure out how to run a quality program that parents in the community can afford to use and that provides the salary we need in supporting our family.
A simple business plan will:
- help you think through what you want in your program, rather than only what you can afford.
- show that your business will generate enough revenue to cover your expenses and make a satisfactory return (your salary).
- develop your marketing strategy
- help set long-term goals. Having long-term goals will guide you in making some hard decisions moving forward, while supporting the type of program you establish.
Don’t let the idea of a business plan scare you. It’s really just looking at questions that pertain to what you hope your business to be and honestly answering them.
Here are some questions to consider as part of your business plan:
- What does your salary need to look like? minimum income, benefits
- What age group(s) do you want to serve?
- What is the greatest unmet need in the community?
- What is the maximum capacity of your space?
- What is your desired capacity?
- Do you need staff? This will mean looking at their wages, taxes, benefits, trainings… as well as, policies just for staff.
- What is the current market rate for your community?
- Do you want a particular curriculum or to present a specific educational philosophy? This will have implications on your training and what kind of equipment and other materials will be needed.
- What hours will the program be open? Many parents work nontraditional hours and may need a program that opens earlier and/or closes later.
- Will breakfast, lunch and/or snacks be provided, or will children bring bag lunches? Providing food at the program can ensure that the children receive nutritious food and that all children have equal access to adequate food. Providing food will be an expense vs having children bring lunch. CACFP (Child and Adult Care Food Program) can cover some of the cost. CACFP reimbursement is considered income. Food purchased is a tax deduction/business expense.
- Who is your target audience and how best to reach or market to them?
- What level of parent involvement do you want in the program?
Include a pre-opening budget in your plan. This includes your set start-up costs, any capital expenses related to meeting licensing requirements and financial coverage for the period before you reach your minimum capacity of children attending the program. Wait, minimum capacity?
Tip: Work your operating budget without a need to be at full capacity. Best practice for a sustainable child care business is to budget for 85% full capacity. That relieves you from ongoing financial stress, as well as, providing a built in contingency fund when you are at full capacity.
Being your own boss means remembering to pay yourself first!
What is the minimum capacity, at your community’s current market rate, that will provide you a living wage? Your salary is your #1 expense line. To often providers just take what is left. No, you are working to support your family. Pay yourself first!
Then think about the additional food costs if you are providing snacks and meals. The increase you might see in utilities because of operating a business full-time within your home. The cost range you can handle for additional equipment/supplies that are only about the child care program (art supplies, extra blocks, puzzles).
Tip: equipment/supply costs can be kept low by thinking outside the box – books from the local library, used toys from yard sales/thrift stores, DIY toys and equipment from recycled/repurposed materials, and natural materials. Everything does not need to be new.
As part of your business plan figure in how you will build your contingency fund. Remember that 85% full capacity? This fund ensures the continued operation of your small business despite the problems that do arise (ie. late receipt of payments, unexpected equipment problems, under-enrollment, year-end taxes). Every dollar counts in this. Even $5 a week adds up: 5 x 52 = $260 in a year. Or maybe $1 per child per week – 8 children means $8 per week = $416 a year. Better is 1 full-time care slot: example: 125 x 52 = $6500 a year. Best is 2 full-time care slots: $13000 a year at $125 per slot.
Let’s look at an example: capacity of 8 children full-time. You charge $125 per full-time slot (6 slots) and $80 for 2 school-age slots. Total weekly: $910. If you remove 2 full-time slots to use for a contingency fund – $660 remains. Working off a sixty hour work week to figure your hourly wage you are getting $11 an hour. Now remember you have supplies and utilities that also need to come out of the $910 total. So, taking a third off for the business share of supplies, utilities, taxes, etc ($220) you are paying yourself $440 a week, plus the contingency savings of $250 a week. Remember when you worked out of your home your salary used to pay to support your home. Now many of those items come under business costs and are tax deductible.
Monthly: salary – $1760 / contingency – $1000 / business share supplies – $880
Add your salary with business share = $2640 per month / $31,680 per year (52 week) (for 8 children at $125 per week)
A big area to consider while building your budget is that adequate furnishings and equipment are essential components of any quality child care program. As a family child care program you have both the pluses and minuses of working in an established environment. You already have a working kitchen and bathroom. As you move forward 2 questions to consider:
- Are you working within your family living space or do you have a dedicated child care space?
- What equipment do you really need to effectively run your program supporting children’s development in all areas? Furnishings and equipment in any type of child care program need to stimulate all aspects of children’s development in a variety of ways. Set-up of the space influences how children respond directly to the environment and the kinds of activities they will engage in. For example, a climbing structure encourages use of their large muscles. If the platform holds multiple children, it encourages socialization.
Many family child care providers learn to be frugal. That does not mean doing without, but being mindful, creative and resourceful. Before you rush out to buy any expensive piece of equipment or a set of supplies, consider these possibilities:
- Are there parents/friends/family members who might have what you want, and would be able to give or lend it to you?
- Can you buy a “nearly new” version of the item by advertising in your community newspaper or checking out second hand stores and garage sales?
- Can it be borrowed? Is there is a toy or equipment lending library in your community.
- Make your own (or get a friend or parent to help). Items like musical instruments, puppets, games, felt board and figures, puppet theatres or playhouses can be built from many different materials with very little skill. Online is a wealthy of inspiration. Be sure to check out the DIY Boards FCCAM has on Pinterest.
- Recycle. Parents and friends are usually delighted to collect supplies such as collage materials, dress-ups, and props. Tip: this can also save on storage space needs. Ask a week or two before you will need the supplies, or as you use up what you always have on hand for the unexpected usage.
- What about an “equipment swap”? Think of arranging a toy, book, or tape swap with friends, neighbours or other care providers.
Your Business Plan is being built.
The next big cost is equipment for the program.