Posted in Business Practice

Business Budgeting

This post is in response to questions providers have asked about raising rates, how to figure what rate is required to cover costs, raising expenses, and considering closing.

What is shared in this post is a gathering of reliable information combined with personal experiences. FCCAM is not rendering legal or tax advice. If you require more specific assistance, please consult a legal or tax preparation professional to represent you.

Best business practice start with developing an understanding of what a “Business Budget” is.

Definition: A budget is a projection or a plan for the amount of money that will be made by the child care
business and the amount of money that will be spent to operate the child care business during a fiscal year.

A budget is not what is actually made and spent. That info is referred to as “Actuals”.

So why do you need a budget if it really is just a estimate?

You need to have an idea of income and expenses, so you can figure out what your rates need to be. Can you adjust your expenses? Are you paying yourself the wage you need to support your family? Etc…..

How do you go about figuring this out?

  1. Track actual income and expenses (for a least 3 months).
  2. Have a goal in mind for the income you want to have to meet your family needs.

For those already in business you can look at past years’ taxes to track real income and expenses. If a new business you can track 3 months of actual income and expenses. Over 3 months you will probably be able to cover most normal costs and income, so you can then apply that knowledge to a complete fiscal year. Always remember the a child care business can have unexpected changes around number of children in care. If you have known peaks or valleys, such as vacation weeks, no summer care offered, etc, figure those in.

For your goal you need to think about your wage needs. Your child care business is “your job”. When you started your business did you plan be to working for free or volunteering your time providing care for other’s children? Probably not, so what do you need for a wage to support your family? Are there big purchases you want to be able to make? Or upcoming expenses you will need to cover?

Do not forget to budget for RETIREMENT! Get a qualified retirement plan and add a line item to your budget for it. Whether you contribute monthly or once a year, by adding it as a line item to the budget you are prioritizing your retirement. Want to know about Simple IRA plans the IRS has an information page. Your retirement is also impacted by Social Security which is figured from your net income. Need to learn about how Social Security works, especially for self employed here’s a past post: Your Social Security Benefit: How It’s Figured. Also consider opening a free my Social Security account where you can track everything having to do with your personal social security status.

Once you have an good/realistic estimate of your monthly expenses and income, total all expenses for the year and subtract that number from the total income for the year. Is that number you end up with bigger than zero?

If yes, great, you have a budget that projects a profit! Does the profit reflect your financial goal? If yes, great! If not, then you need to look at your budget for ways to adjust expenses and/or increase income.

If no, then you are operating your business in a way that actually costs you money to be in business!

The budgeting process allows you the opportunity to work to change things in the plan before the plan becomes a reality. Your budget also isn’t a once and done. Review it, reflect on your goals and any changing needs. You can make adjustments to your practices and your budget at any time, so your budget reflects what is happening.

Why you need both a business budget and actuals:

  • Tracking your actuals helps you keep tabs on your current fiscal status.
  • Tracking your actuals helps you predict your budget for the future.
  • Your budget helps you plan long-term.
  • Your budget helps you make better spending decisions in the moment.

Providers have found that once they took the time to do a first budget the following years seemed to work off their “actuals”. They were able to review actuals, think about financial goals for the coming year and see where the budget might need to be adjusted. They did not have to do as much work as the first time. They also had how they tracked/ recorded/ maintained records for their actuals in place. Providers today have options to purchase systems, use hard-copy record keepers, or building their own spreadsheets.

MRTQ has recently offered “Strengthening Business Practices, a solid training around business practices that support sustainability. This training was developed by the National Center in Early Childhood Quality Assurance with grant funds from the US Department of Health and Human Service, Administration for Children and Families, Office of Head Start, Office of Child Care, and Health Resources and Services Administration in cooperation with the Education Development Center.

The response from providers who have taken whether new to the profession or having years behind them as small businesses has been really positive. Check MRTQ weekly newsletter “Shortcuts” for the next time it’s offered.

Posted in Business Practice

Your Social Security Benefit: How It’s Figured

Why is FCCAM posting on this topic? Many providers take the maximum amount of deductions they can each year. That means your net income is significantly less than gross, so ultimately your Social Security benefits will also probably be less than you were expecting.

It’s important to understand how social security benefits are figured.

  • Benefits are figured off your lifetime earning – the net income you pay yearly taxes on, NOT your gross income.
  • Adjust or “index” your actual earnings to account for changes in average wages since the year the earnings were received.
  • Calculate your average indexed monthly earnings during the 35 years in which you earned the most.
  • Apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount.”

How do you find out about your status for Social Security benefits?

Set up a personal “my Social Security” account. This site gives you access to: an estimate of your personal retirement benefits; see the effects of different retirement age scenarios; an online Social Security Statement (Statement).

Review your earnings history to make sure everything is accurate. This is important, because your benefit amount is based on how much you’ve earned over your lifetime. If that information is wrong, you may not get the full amount you’re entitled to.

Important Things to Know about Your Social Security Benefits

  • Social Security benefits are not intended to be your only source of retirement income. You may need other savings, investments, pensions, or retirement accounts to make sure you have enough money when you retire.
  • You need 40 credits of work (at least 10 years) to qualify for retirement benefits. The amount of your benefit is based on your highest 35 years of earnings. If you have fewer than 35 years of earnings, years without work count as 0 and may reduce your benefit amount.
  • To keep up with inflation, benefits are adjusted through “cost of living adjustments.”
  • If you get retirement or disability benefits, your spouse and children also may qualify for benefits.
  • If you and your spouse both work, use the my Social Security Retirement Calculator to estimate spousal benefits.
  • If you are divorced and were married for 10 years, you may be able to claim benefits on your ex-spouse’s record. If your ex-spouse receives benefits on your record, that does not affect your or your current spouse’s benefit amounts.
  • Learn more about benefits for you and your family