Click Here to Download PDF
Accounting for Child Care Centres
One of W. C. Fields most famous quotes is, "Never work with animals or children." While he secretly admired children we all know that running a child care centre or early learning centre presents a number of challenges. Temper tantrums and difficult parents aside, the industry is heavily regulated and you need to satisfy specific operational requirements around educational programs, building standards, physical environments, staffing plus policies, procedures and record keeping.
The government regulations are stringent and apply equally to long day care centres, outside school care and occasional day care establishments. You need to have appropriate and adeqate public liability, professional indemnity and workers compensation insurance in place and you also need to satisfy the Regulatory Authorities that you are a fit and proper person to be involved in the provision of early childhood services. This requires a history of compliance with current education (every childcare worker in Australia must have a Certificate III in Children’s Services) and care service law, a criminal history check and be clear of bankruptcy issues.
Administration can be a burden including keeping up to date with reporting for the regulatory bodies, bookkeeping, looking after finances and chasing debtors. Most centre owners are always looking to upgrade their existing facilities to improve the experience for the children and grow their revenue and profits which requires marketing to maximise their enrolments. In summary, we find most child care centre professionals are striving to improve the quality of their service but but are under immense pressure and are time poor.
The childcare services industry is expected to post strong growth over 2016/17 with revenue projected to rise by 12% to reach an estimated $12.4 billion. Enrolment numbers are expected to rise with the industry benefiting from rising maternal workforce participation rates as government subsidies for formal childcare services encourage mothers to return to the workforce. The changing needs of working parents with a growing number working on a part-time or shift work basis will also continue to drive industry demand.
FINANCIAL ASPECTS OF CHILD CARE and EARLY LEARNING CENTRES
Over the years we have developed some benchmarks and key performance indicators for the child care sector which allow us to work with centre owners in setting and achieving realistic financial goals.
- Staff Costs are critical to success and generally in the region of 60-70% of Gross Revenue (with strong occupancy), although this figure can be lower with the owner working in the business. In a competitive environment it is often necessary for the owner to be on the staff to deliver a decent return on investment.
- Break even occupancy level varies based on the size of the centre, but can range as high as 95%.
- Govenment Carer to Children Ratios:
- - Age 0-2 Govenment regulations require 1 adult to 4 children
- - Age 2-3 Government regulations require 1 adult to 5 children
- - Age 3+ Goverment regulations require 1 adult to 10 children
- Staff must be in a mix and include Diploma, Cert III, & Bachelor Degrees.
- Centres need to follow the Australian mandated National Department of Education curriculum and need an Educational Leader Program person to cover for those in training – responsible for Portfolios, Observations, School reports, curriculum development.
- Daily childcare rates (in Sydney & suburbs) 2017 are between:
- - Children aged 0-2 $110 - $140
- - Children aged 2-3 $100- $130
- - Children aged 3+ $90 - $120
- There is no GST on child care fees.
- Centres should insist on a minimum attendance of 2 days per week
- Centres need 1-2 'floaters' (casual staff) available to cover for staff sick days and annual leave
- Child care grants are paid weekly/fortnightly directly to the child care centre by the Government up to 50% of the cost up to $7,500 per child (2017), per year. Grants can be paid directly to the child care centre each week or paid at end of year/ month/quarter to the parents. Not means tested, but parents must meet the Work, Training, Study test.
- When it's time to sell, centres generally sell in a range 3 to 5 times EBITDA Adjusted earnings (after normalising rent and owner salary to approx. $75k p.a.). Multiples of 5 are uncommon and are in most instances paid by larger groups rolling up centres in a consolidation play.
- A worked example of child care centre economics. A 50 child centre can invoice approximately $24,000 per week (with an occupancy at 90%). 20% Gross Profit (after salaries & rent) = $250k p.a and anticipated overheads/expenses are 7.5% ($94k), leaving a net profit before tax of $156,000. EBIT per annum. (12.5% Net Profit Ratio).
We work with child care centre owners to assist them in maximising net income through combined higher fees, higher occupancy, and managed staff costs, so that when it's time to sell, their centres value is at the top of the range.
MARKETING YOUR CHILD CARE CENTRE
As accountants, we operate in a very competitive industry just like the child care industry. We recognise the fact that your marketing could be the difference between gloom and boom and while we have a small firm personality, we have big firm capabilities. One feature that distinguishes us from other accounting firms is our marketing expertise.
Most child care centres rely on their reputation and referrals to grow their business. While these ingredients certainly remain important, in the digital age you need to shift your marketing focus online. Increasingly local searches like ‘child care centre Manly’ are driving traffic to your website which is often the first touch point with a potential new family. As you know, in business, you only get one chance to make a good first impression and your website is your 'online shopfront' and silent sales person working 24/7 to promote your business.
Over the past few years we have worked with a number of clients to help them create quality, affordable lead generation websites that are responsive to smart phones and tablets. We can introduce you to the right team to plan and build your website, optimise it for Google and the other search engines plus assist you with your content creation including video production and digital publishing. If your website is missing features like lead magnets, calls to action or landing pages your development partners will build them plus we'll also introduce you to strategies like re-marketing and search engine optimization to drive more traffic to your website.
Your brand should resonate with your target market and we can assist you with the development of your business name, logo and slogan, your corporate brochure plus we can guide you in writing blogs and newsletters plus help you harness the power of social media to win more referrals. If you aren’t using some of these marketing techniques your business probably won't reach its full profit potential.
Most importantly, we understand that business owners like you want more sales, more customers and more profit so we also give you access to one of the world’s most successful marketing programs, the ‘Business Growth System’. It contains more than 80 breakthrough marketing strategies supported by videos, templates, checklists and 2,500 pages of instructions. Access to this ‘vault’ of resources would normally cost you $500 per month, however, as a client of the firm you get unlimited FREE access. In addition, you also get access to the ‘Grow Your Business in 5 Days’ video training course that could have a massive impact on your future business growth. That's over $7,000 of valuable marketing tools you receive when you come on board as a client with us.
THINKING OF STARTING A CHILD CARE OR DAY CARE CENTRE
Child Care Centres are one of our specialist client groups and having mentored numerous business owners through the start-up phase of their business we have built a reputation as business start-up specialists.
Before you decide if you plan to start your child care centre from 'scratch', buy an existing centre or buy into a franchise operation there is some homework you need to complete:
- Check out the local competition and their pricing including other child care centres, outside school care, occasional day care establishments and nanny services
- You need to determine whether there is enough demand for another child care service in the area which includes researching the demographics of the local population
- Consider the size of the centre and how many children you want to look after as this will impact on the venue, staff numbers and pricing
- Once you have looked at the competition and identified your ideal customer, you should look at some price modelling which will vary depending on the location and the age of the children (for example it costs more to look after babies than toddlers).
Each of the options below have various pro's and con's and we can help you assess the risks and prepare cash flow budgets and profit forecasts together with a business and marketing plan for your centre.
- Building a Centre - presents a new range of new challenges because you also have to contend with building regulations and council permits, landscape designers, architects and interior designers (for both the indoor and outdoor areas) plus much more! You have to source and train staff and establish sytems and procedures for a new centre.
- Buy an Existing Centre - There are many pre-existing childcare centres that come on the market for sale. They have staff and systems in place plus a database of children and families ready to market to but you have to take over management responsibility which means staff retention, administration and marketing become part of your role.
- Franchise Centres - It's a very competitive industry and there are a number of franchises in the child care centre industry who offer you a systemised approach that means you are buying into all their systems, training, resources, policies and procedures etc.
As a start up business you also need to establish your business structure, complete tax and GST registrations, consider insurances, select an accounting software program and possibly explore your finance options. It can be a maze of issues but as accountants and business advisors we can assist you in all of these areas plus provide advice on the preparation of a business plan, marketing plan and a cash flow budget. If you need to employ staff we can also assist you with human resource matters including payroll, WorkCover and superannuation guarantee obligations.
Our team of accountants have experience in helping child and day care centre owners get their business off to a flying start. We offer you experience, technical tax knowledge, marketing expertise and most importantly, an intimate understanding of the child care industry.
Starting a business is a bit like building a house that requires solid foundations. In a business sense these foundations include the right tax structure and accounting software, adequate and appropriate insurances together with a marketing plan and a lead generation website. Your choice of business structure is absolutely critical and there are a number of different options including sole trader, partnership, company and trust. When selecting the most appropriate structure for your business we always recommend you ‘start with the end in mind’ because Australian tax laws are complex and changing your business structure at some point in the future can trigger a capital gains tax event that could prove very costly.
Whenever we provide advice on business structures we always considert:
- Income Tax Minimisation
- Maximize Asset Protection
- Allow for the Admission of New Business Partners or Investors
- Comply with all Legal Requirements in your Industry
- The Risk Profile of Your Industry
- Consider Future Entitlement to Discount Capital Gains Tax Concessions
As a consequence, we often find the business structure is a compromise based on the relative importance of each of these issues.
Another brick in your business foundations is your choice of accounting software. Poor record keeping is one of the biggest causes of business failure in this country and up to date, accurate financial records let you to make informed business decisions. The wrong choice of software can be catastrophic and too often we find business owners produce what we describe as ‘computerised shoebox’ records that cause frustration, waste time and create additional fees. This conflicts with our mission of helping you slash the time and cost associated with bookkeeping and GST compliance.
Here at the Business Ignition Group, we want to be your accountants and business advisors, not an expensive bookkeeping service. We do more than ‘keep the score’ for our clients and when selecting the most appropriate accounting software for your business we always recommend you match your business needs with your level of accounting skill.
You’ll find we support a range of different software options but we do have a preference for cloud based solutions like Xero, Saasu, Sage One and Quickbooks Online because of their flexibility and the fact that you can access your financial data via the internet and invite your accountant or bookkeeper to view your accounts at the same time. This means you can get bookkeeping support and valuable advice in real-time. You can also log-in anytime, anywhere on your Mac, PC, tablet or smart phone to get a real-time view of your cash flow. Your data is automatically backed up and users have access to the latest version of your financial data plus you never need to worry about installing software or program updates.
To build a house you also need the right tools and when 'constructing' your business we have developed a number of tools including a start-up expense checklist broken down into various categories including:
- tools and equipment
- professional advice and software
- information technology costs – software and hardware
- marketing, branding, stationery and signage
- vehicle costs
This checklist will help you identify all your potential establishment costs and these figures then feed through to our cash flow budget template and allow us to produce a projected profit and loss statement for your first year of trading. These reports can also tuck neatly into our business plan template that is designed to help you secure funding from external sources like a bank. Another useful tool is our business start-up checklist that walks you through key business registrations you might require, insurance options, legal requirements, branding and domain name registrations for your website.
For a child care centre, your vehicle is one of your most important business tools. To learn more about the alternative methods of claiming your vehicle expenses and the distinction between a business and private trip, you can read our Motor Vehicle Tax Guide. In addition, through our affiliate partners we can also assist you with vehicle finance (chattel mortgage, CHP or lease) and get you fleet pricing on your new car or light commercial van that could save you thousands of dollars. Through another affiliate we can also help you source funds to finance your business purchase, equipment or where applicable, your franchise fee.
In summary, if you're contemplating starting a business you don't need to reinvent the wheel as we have all the tools and resources in our 'Business Start-Up Vault' to help you get off to a flying start. In fact, that’s just the beginning because as accountants we can do some financial modelling and prepare some ‘what if’ calculations based on different price points so you know your business’ best and worst case profit scenarios. Next, using industry benchmarks we can compare the performance of your day care centre against your competitors so you understand what is working in the business and what areas need working on.
Wewill help you understand the four ways to grow a business plus identify the key profit drivers in your business. We can walk you through a number of profit improvement strategies and even quantify the profit improvement potential in your business. Our role is to make sure you know your numbers and don't leave any profit or tax savings on the table.
If you're looking to fast track your business success the team at the Business Ignition Group offer you a range of accounting, taxation, marketing and business coaching services including:
- Start-Up Business Advice for Child Care Centres
- Advice regarding the Purchase or Sale of your Child or Day Care Business
- Tools including the Start-Up Expense Checklist and Templates for a Business Plan, Cash Flow Budget, Letterhead and Business Card
- Advice and Assistance with the Establishment of Your Business Structure - Company, Trust, Partnership etc.
- Tax Registrations including ABN, TFN, GST, WorkCover etc.
- Preparation of Business Plans, Cash Flow Budgets and Profit Projections
- Accounting Software Selection and Training – Bookkeeping, Invoicing, Quotes, Payroll, and Practice Management (Xero, Saasu, Sage One and Quickbooks Online)
- Preparation and Analysis of Financial Statements
- Preparation of Finance Applications - Loans to Buy a Business, Expand, Franchise Fees
- Bookkeeping and Payroll Services - By Referral
- Tax Planning Strategies
- Assistance with your Marketing including your Branding, Corporate Brochure, Videos etc.
- Advice and Assistance with your Website Development, Content, Blog Posts and SEO
- Wealth Creation and Retirement Planning Services including Transition to Retirement & SMSF's
- Industry Benchmarking and Management of Key Performance Indicators (KPI's)
- Vehicle & Equipment Finance (Chattel Mortgage & Lease) - By Referral
- Monitoring and Controlling Labour and Sub-Contractor Costs
- Advice & Assistance with Pricing your Services
- Claiming Motor Vehicle Expenses
- Advice regarding Employee Relations and Workplace Laws
- Business and Risk Insurances (Income Protection, Life Insurance etc.) By Referral
- Business Succession Planning
In summary, we are so much more than just tax accountants. We are business and profit builders who strive to deliver practical, cost effective advice that could give you a serious competitive edge in the Child Care industry. Our marketing strategies are designed to help you grow your business and your profits and over the years child and day care centres have become a niche area within our firm.
Our range of practical skills distinguish us from other accounting firms and if you're a committed and ambitious business owner looking to accelerate your success we invite you to book a FREE, one hour introductory consultation to discuss your child care business needs. You can expect an hour of practical business, tax, marketing and financial advice that could have a profound effect on your future business profits. To book a time, contact us today and let's get to work on your business so it's more profitable, valuable and saleable.