Our goal here at The Child Care Success Company is to help you stay prosperous, successful and keep your doors open! So, in this weeks Blog we’re going to do a Question & Answer format, addressing the issue of cash flow and profit.
Jennifer, a member of our Success Academy asks:
“I am 75% full in my center, and yet I don’t feel the cash flow and profit are there. I’m still robbing Peter to pay Paul. Kris, what am I doing wrong?”
Before we dive into this question from Jennifer I just want to say that while I know most of you get into this business because you are passionate about the kids, it really is also important to understand how your business works in order to stay profitable and viable. Doing so will allow you to offer your awesome program to as many families as possible. One of the key strategies that have helped ourmembers go from survive to thrive is understanding and watching the numbers.
With that said, let’s go back to Jennifer’s question. There are three things Jennifer needs to consider when looking at her revenue, cash flow, and profitability.
1. Enrollment Versus Capacity
In the child care business, you really have to keep an eye on your full time enrollment equivalent versus your capacity. Since you are in a business with a large amount of fixed costs (costs you pay no matter how many customers you have), profitability really starts to come once when you are closer to capacity. You will usually start to feel abundance and profitability when your full time equivalent enrollment is between 85%-100% full. I talk more about this in my first book,
When you get in that enrollment sweet spot of 85%-100%, you are going to be seeing that extra revenue falling to your bottom line. This is because most of your additional costs for taking on additional children are incrementally small compared to your larger fixed costs that have now already been covered. You may have to hire an additional teacher or food costs might go up a small amount, but when looking at the bigger picture, this sweet spot is really when you start to be profitable.
After understanding this concept, your next step is to figure out how many children you need to get to your sweet spot. How many children do you need to attract and enroll to get to at least 85% full?
When you know your number then you can plan your marketing goals to get that many children enrolled in your program. Share that goal with your team. Create a plan to get there. This blog is chock full of tips on how to attract more families so take some time, plan it out, and implement it.
2. Full-Time Equivalent
It is essential to understand how many part-timers versus full-timers you have at your child care. When mymembers run into the issue of profitability, and think that they think they are full, I’ll often ask them about their full-time equivalent.
What is your full-time equivalent?, but in short, let’s say you have 150 part-timers in your child care center and your capacity is 150. You may think you are full but really your full-time equivalent is 75, so you are really only at 50% capacity. This means you have empty holes in your schedule that are really “buckets of revenue” just waiting for you. You need to know your full-time equivalent and manage it efficiently if you want to be profitable.
What we often coach in theis to limit your part-time enrollment to a certain percentage and drive that number strategically down over time. So perhaps you would grandfather your current clients in but start eliminating one or two day enrollments. Or you would only take 3s and 5s, and then match up 2s and 3s respectively. Looking at this more strategically, will get your child care center full, help you become more profitable, and allow for more cash flow.
3. Financial Statements
The final key is consistent and timely financial reporting. On a monthly basis look at your profit and loss statement from the prior month. Keep an eye on your expenses as percentages of revenue. If available, compare it to last year’s statement. For efficiency, use a bookkeeper and/or someone in your office to help you do this. It is essential to do this quickly and routinely so you can give attention to any areas of expenses that are getting out of control.
Doing this will allow you to see exactly where the money is going and help you start to run your business more strategically. For example, one particular industry benchmark is that you shouldn’t be spending more than 50% of revenue on your labor. If you see this cost running out of control you can start to strategize on some solutions.
The practice of consistently looking at your financial statement will help you keep an eye on your expenses in every category. Then you can dig in to those buckets and figure out where the expenses are really happening and will help you manage your finances much better.
Take action on this. Understand how full you really are. Understand your part time versus full time numbers. Look at your financial statement consistently and quickly after the month that just passed. If you start doing these three things, you will really start to understand your business and how to make it more profitable.