Creating a Financially Healthy Child Care Business

Childcare businesses, just like people, can be described as either healthy, a little sick, anemic, or gravely ill. When sick, humans often need a consultation with a doctor, the right medicine, and often a change in diet, lifestyle, habits, or a change from things that lead to their illness. We do not often think of a business being “sick,” but the symptoms are similar. Just as a person not well exhibits signs or symptoms of something not being quite right – pain, fever, lack of energy, or other elevated symptoms that may indicate a more severe illness. Financially unhealthy businesses also display symptoms – cash flow problems, limited profits, unpaid bills, high account receivables, trouble making payroll – and more severe symptoms like foreclosure and unpaid taxes. To take the business from financially unhealthy to healthy – like with humans requires a consultation with a childcare business financial expert, the correct diagnosis and treatment – and changing the things that lead to the business being financially unhealthy. Much of my time is spent helping childcare business owners understand and improve the financial health of their businesses. Yes, I am a childcare Mergers and Acquisition Advisor. Still, often, when childcare owners initially contact me about potentially selling their childcare business – I must put on my “Business Doctor” hat and help them improve their business before it can be sold. In helping childcare owners, I analyze their financial statements (Federal Business Tax Returns, Profit and Loss Statements, Balance Sheets), historical and current enrollment, tuition rates, and other financial and program details. It is often not just one or two things that lead to the business not being financially healthy – it is more often a combination of several things like:

• Labor costs and benefits exceed normal operating ratios.
• Facility cost – monthly rent or mortgage payment is more than normal benchmark ratios – higher percentage of gross revenues than what is considered an acceptable amount – compared to current gross and optimal gross revenues.
• Tuition rates that do not cover all the costs of care are certainly not at a price point that will cover all costs and provide a desired profit level.
• Low enrollment – for whatever reason – lack of staff, ineffective marketing, program quality, and reputation, or intentionally low enrollment because of the owner or staff’s desire for a lower enrollment.
• Poor in-house financial controls and record-keeping.
• Bookkeeping and accounting services provided by an accounting/CPA firm that is late, inaccurate, or incomplete.

An analysis of this type is necessary to understand the root cause of the financial issues. Then, the childcare owner and I work to create a plan that, if implemented over time, will improve the business’s financial health. The plan often involves the childcare owner agreeing to make several common changes:

• Become more knowledgeable about financial management and implementation of sound financial management techniques.
• Implement Zero Based Budgeting to determine necessary and unnecessary business expenses better.
• Focus on better scheduling of staff and utilization of human resources.
• Implement financial controls to ensure all revenue is collected and accounted for each week.
• Work with the current bookkeeper/accountant to obtain their commitment to more accurate and timely financial information or change to another accounting provider.

As a business owner, you must create a financially healthy childcare business. Even childcare businesses that are “just a little sick” often struggle to provide a consistent quality program because of financial constraints. And the more financially unhealthy the business becomes, the more likely the childcare business will need to be sold or closed. As we start a New Year, one of the most important resolutions you can make is to focus in 2024 on creating a financially healthy childcare business. As a childcare business financial expert, I can help you become “financially healthy” faster than trying to do it yourself.  If you would like to learn more about how ChildCareOwner can help, please give us a call at 336-355-1009. All conversations are confidential, and the initial consultation is free with no obligation.