This paper presents a budget analysis and strategic recommendations for Middlehurst House, a childcare center serving children from infancy through age six. Drawing on neighborhood gentrification trends and parent satisfaction data, the memo outlines six financial scenarios—ranging from a 25% tuition increase to the addition of an infant class—each modeled with full revenue and expense breakdowns. The analysis evaluates tradeoffs between improving child-to-teacher ratios, accommodating waiting-list enrollment, and maximizing monthly earnings. Recommendations emphasize meeting with the accountant and parent advisory board to select an optimal growth path before the next fiscal quarter.
Our catchment area continues to show high interest in the childcare services that Middlehurst House offers. We consistently maintain a waiting list of children and receive enthusiastic inquiries from parents each month. Casual discussions with local realtors and exploration of the county's residential property values database indicate that the surrounding neighborhoods are experiencing increased gentrification. Indeed, there are indications — including our parent satisfaction survey results — that our client families would support higher tuition. The information below is provided for consideration as we move into the new fiscal year.
Although our class sizes are well within state and city regulations and compare favorably with recommendations from the National Association for the Education of Young Children (NAEYC) for early childhood education and daycare programs (NAEYC, 2012), we have the capacity to decrease the number of children per class. This change would improve program quality and position us more competitively. Smaller class sizes would also enable us to implement enrichment programs that have often been discussed, such as embedded foreign language and music instruction (Lomba, 2011; Richardson, 2010; Schiller, 2007).
Several scenarios are described below for consideration. All calculations reflect monthly figures and may be found in the attached spreadsheets.
Current Model: Under the current model, monthly earnings are $2,200. This figure does not reflect net operating margin or EBITDA.
Scenario 1a — Tuition Increase (25% and 50%): Raising tuition by 25% increases earnings to $5,900 per month. Raising tuition by 50% increases earnings to $9,600 per month. Note that tuition has not been raised for the 5-to-6-year-old classes, as these parents are fundamentally opposed to an increase.
Scenario 1b — Smaller Class Sizes: Moving to smaller class sizes — a 1:6 ratio for the 2-to-3-year-olds and a 1:8 ratio for the 3-to-4-year-olds and 4-to-5-year-olds — while keeping total enrollment at 80 children and charging tuition at 50% above current rates produces monthly earnings of $2,044. The increase in required teaching staff raises expenses significantly, offsetting much of the revenue gain.
Scenario 1c — Adding a 5-to-6-Year Class from the Waiting List: Adding a 5-to-6-year-old class drawn from the 11 children currently on the waiting list, again at the higher tuition rate, would generate monthly earnings of $5,446.
Scenario 1c (Extended) — Adding Classes Across All Age Levels: If more classes are added across all age levels to accommodate children on the waiting list — while maintaining the smaller class-size ratios (1:6 for 2-to-3-year-olds; 1:8 for 3-to-4-year-olds and 4-to-5-year-olds) and charging a 50% higher tuition rate — monthly earnings would reach $7,009.
Scenario 1d — Adding an Infant Class: Adding one infant class to the configuration described immediately above, with tuition for the infant class set equal to that of the 2-to-3-year-old class, would generate monthly earnings of $7,307. This scenario does not require capital expenditures, as existing facility space can accommodate the additional class. Research on infant and toddler care quality supports the value of low staff-to-child ratios in this age group.
Revenue:
2-to-3-year-olds: 2 classes, 10:1 ratio, 20 children, $320/month per child — $6,400
3-to-4-year-olds: 1 class, 15:1 ratio, 15 children, $280/month per child — $4,200
4-to-5-year-olds: 1 class, 15:1 ratio, 15 children, $280/month per child — $4,200
5-to-6-year-olds: 2 classes, 15:1 ratio, 30 children, $280/month per child — $8,400
Total: 6 classes, 80 children, Revenue: $23,200
Expenses:
Salaries — Teachers: $9,600 ($1,600 per teacher)
Salary — Director: $2,000
Salary — Cook: $900
Food: $2,200 ($27.50 per student)
Benefits: $2,450
Supplies: $600 (plus $520 admin supplies)
Facility and Admin: $3,250
Total Expenses: $21,000
Earnings (not EBITDA): $2,200
Revenue:
2-to-3-year-olds: 2 classes, 10:1 ratio, 20 children, $400/month — $8,000
3-to-4-year-olds: 1 class, 15:1 ratio, 15 children, $350/month — $5,250
4-to-5-year-olds: 1 class, 15:1 ratio, 15 children, $350/month — $5,250
5-to-6-year-olds: 2 classes, 15:1 ratio, 30 children, $280/month (unchanged) — $8,400
Total: 6 classes, 80 children, Revenue: $26,900
Expenses: Same as current model — $21,000
Earnings (not EBITDA): $5,900
Revenue:
2-to-3-year-olds: 2 classes, 10:1 ratio, 20 children, $480/month — $9,600
3-to-4-year-olds: 1 class, 15:1 ratio, 15 children, $420/month — $6,300
4-to-5-year-olds: 1 class, 15:1 ratio, 15 children, $420/month — $6,300
5-to-6-year-olds: 2 classes, 15:1 ratio, 30 children, $280/month (unchanged) — $8,400
Total: 6 classes, 80 children, Revenue: $30,600
Expenses: Same as current model — $21,000
Earnings (not EBITDA): $9,600
"Line-item revenue and expense tables for all models"
"Advisory board meeting and next fiscal steps"
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