Child care business operations and management

Child Care

The Budget

This chapter deals with what many think is the most difficult and least enjoyable aspects of the business -- preparing a budget. The basic budget for an organization lists the amount of income you are expecting to collect and the expected expenses for the accounting period. An established budget for the year does not change. If you earn more or spend less, these are counted as variances, but the budget remains the same. The chapter recommends working on expenses first and revenue figures second. Expenses include salaries, benefits, rent, services, insurance, fees, supplies, utilities, etc. Some expenses are fixed (insurance, rent) and others (supplies per child) are variable. The following steps need to be followed in building a budget: 1. estimate expenses by a limited time period; 2. estimate future expenses over a year; 3. constructing a salary spreadsheet; 4. estimating tuition revenue; 5. balancing the budget. Each of these steps involves using spreadsheets and other accounting tools to project estimates for the entire year. Revenue is estimated based on registration fees, grants, fundraising, donations, tuition, government funds and food program revenues. Much of revenue estimation involves looking at past years' performance and extrapolating from there. This is especially true for tuition estimation, which works by figuring out how many spaces will be added or subtracted form the previous year. Tuition revenue is raised either by adding more spaces or by raising tuition. Both options need to be factored into the final numbers. The remainder of the chapter includes samples and instructions for working with the spreadsheets needed to estimate revenue and balance the budget.

Chapter 5 -- the Budget as a Planning Tool

Once the budget has been finalized it is a critical tool for planning the year ahead. It includes your enrollment goals and can also be used to educate potential donors about the needs of your organization. The first step in planning is to take the yearly budget and use it to estimate monthly income and expense amounts. One way is to simply divide the entire year's amounts by 12. This method assumes that you will be receiving and spending the same amount for each line item each month. This will likely need to be adjusted, as very few child care programs run at the same capacity and staffing levels in the summer as in the school year. Once the monthly budget has been rough estimated, you must then estimate individual categories within the budget, including salaries (by days paid), tuition revenues, etc. Some months of the year may be projected to run at a surplus an others at a deficit, but this is fine as long as the budget balances for the entire year. The chapter reminds the reader to always remember that these are estimates. Once the budget is divided by month, revenue and expenses can be tracked month-to-month. This enables you to compare what actually occurs with what you have planned on. Every month, the actual income and expenses are compared to the budget and variances are calculated. The chapter concludes with examples of two months of tracking income and expenses for a preschool and notes how to compare budget vs. actual numbers. The variances are used to plan the remaining months, but the budget is not changed. Examples are shown over seven months.

Chapter 6 -- Financial Record Keeping

This chapter turns from budgeting to the record-keeping necessary to keep your business records accurate and legal. The introduction to the chapter emphasizes that there are several reasons to keep accurate financial records, including the legal requirement of filing taxes, the needs of the administrators, and the ways in which it helps keep the business on track. Too methods of accounting are discusses: accrual vs. cash basis. An accrual system counts income and expense when the money is committed. A cash system records income and expense when the money come in or is spent. Both systems will add up to the same totals in the end, but the methods are difference. Small businesses are advised to use a cash basis system because it is simply easier to keep track of. Accrual systems are the standard for larger businesses. The chapter goes on to list what documents are necessary to keep and which can be discarded and how to use these documents in keeping financial records. The basic documents are a check register and bank statements. Using just these two items, the chapter gives a seven-step instruction guide to reconciling a bank statement. Reconciling your bank statement is the cornerstone of keeping accurate financial records. An income register, billing records, payroll records, and a balance sheet are other important financial documents discussed. The importance of each and examples of what the spreadsheets look like are included in the chapter. Chapter 6 also discusses how to keep financial records and discusses manual systems, computer spreadsheets and financial accounting software. The chart of accounts is also discussed, as this information defines how the financial information gathered will be organized.

Chapter 7 -- the Decision-Making Process