1. Early Childhood Program Management Finance and Budgeting By J.C. Watkins

2. Goals for this segment To develop an understanding of the budget process To examine what needs to be in a start- up budget/ on-going budget To examine fiscal policies, contracts and audits To examine the concept of break-even

3. What is a budget? A budget is a financial plan that lists out Expenses or Costs created by an activity Revenues or Money created by an activity You want revenues to be greater than expenses

4. Reason for budgeting Each year,many small businesses, including child care centers, fail because of poor financial management. If your operation is to succeed, you'll need a sound budget, i.e., a plan that provides a realistic projection of actual estimated expenses and income.

5. Successful or Failing Business Budgets will indicate whether your projected income will meet your expenses. If income is greater than expenses, then you have profit or surplus revenue If income is less than expenses, you will lose money

6. Start-up Budgets These budgets include one-time costs as major equipment, renovation, utility deposits and down payments start-up budget should include at least 60 to 90 days of operating costs

7. Start up Budget Categories Personnel Occupancy Equipment Supplies Miscellaneous Legal and professional fees Total

8. On-going Budget Categories Expenses Personnel Occupancy Food Other expenses Annual payment on start-up loan Total

9. On-going Budget Categories Revenues Fees (Assess 70% enrollment; no. of children x enrollment cost/week x no. of weeks) Fund-raising/donations Total income

10. Revenues The primary source of income for your center will be fees usually all income is generated by monthly tuition fees. Also, be sure to complete a cash flow sheet for each month. This will enable you to maintain an accurate record of business income and expenditures for projection and tax purposes. If you are operating your center from home, such a record is especially important to keep track of in-home deductions

11. Financial Planning Add your first-year operating costs and start- up costs to determine how much money you will need from the time you decide to open the center through the center's first year of operation. When including parent fees as income, remember that most centers do not have total enrollment until at least three months after they have opened for operation, and some take several years.

12. Sliding Fee Scale Some centers have a sliding fee scale, which means that parents are charged different scales depending on their income level and number of children. Remember, if you lower a fee you have to make it up in other fees.

13. Fiscal Policies Fiscal policies should include when the staff is to be paid(weekly, biweekly, monthly) Fiscal policies should include late fee payment policies for parents and tax reporting. Fiscal policies should include billing parents on a weekly or monthly basis. Don't let payments fall behind because the longer they are overdue, the harder they are to collect. Fiscal policies should include whether you will charge parents for the days when a child is ill or on vacation or for holidays.

14. Child Care Contracts Many of the items of the fiscal policies should also be included in the child care contract that each parent is required to sign prior to enrolling their child.

15. Audits Audits play an important role in ensuring the sound financial management of a business. An audit provides you with an accurate financial statement and recommendations to improve your financial management.

16. Break Even Analysis A break-even analysis examines the interaction among fixed costs, variable costs, prices, and unit volume to determine that combination of elements in which revenues and total costs are equal.

17. Fixed Costs Fixed costs are those expenses necessary to keep the business open, and are not impacted by sales volume. They will include such things as rent, basic telephone expenses and utilities, wages for core employees, loan or lease payments, and other necessary expenditures.

18. Variable Costs Variable costs include those expenses that change as a result of sales volume. Generally, an initial break-even analysis focuses on a relatively narrow range of sales volume in which variable costs are simple to calculate.

19. Break Even Point Break-Even is where revenues equal expenses

20. Break even example For this example, let’s assume we have determined that the level of costs (salaries, rent, utilities) necessary to run our child care on a monthly basis is $9,000 Let us say, further, that the fixed cost estimate was based on being open 5 days a week, 9 hours a day. This converts roughly to 180 hours a month. If you were open more the costs would change. You serve 18 children.

21. Example numbers $9000/18 children= $500/child/month $500/4 weeks= $125/child/week If you fail to collect totals in a timely manner then the estimate changes

22. Review of Numbers 18 Children $125/week All 18 are paid up and no vacancy you will cover your expenses But for planning purposes figure at 70%

23. Planning Numbers 18 Children $9000 to cover all monthly costs We will need to plan for more than $9000 coming in X(0.7)=9000 X=9000/0.7 X=12,857

24. Planning and Cost Cutting $13,000 /18= $725/month $725/4=$180 So you need to be charging about 180 a month or else costs will have to be cut.

25. Realistic Numbers The average weekly costs in Warren County for 3-5 year old is $88.00 88*20 children* 4 weeks is about $7000 Including uncollected debts you will be hard pressed to be able to cover total expenses of more than $7000/month.