Running a childcare program requires juggling countless responsibilities—from managing staff and maintaining compliance to creating engaging learning environments for children. With so many demands on your time and attention, one crucial aspect often gets overlooked: paying yourself fairly for your hard work.
Many daycare owners struggle with this decision. You might feel guilty taking money from your business when there are supplies to buy or staff to pay. Perhaps you're unsure how much to pay yourself or worry about the tax implications. These concerns are completely normal, but neglecting to pay yourself can lead to burnout and financial instability.
Establishing a regular compensation system isn't just about personal financial health—it's essential for your business's long-term success. When you pay yourself consistently, you create better financial discipline, clearer business boundaries, and a more sustainable operation.
Understanding your childcare program's finances
Before determining your daycare owner salary, you need a clear picture of your financial landscape. Understanding the difference between revenue, expenses, and profit forms the foundation of smart compensation decisions.
Revenue represents all money coming into your childcare program—tuition payments, registration fees, and any additional services you provide. Expenses include everything from staff salaries and utilities to supplies and insurance. Your profit is what remains after subtracting all expenses from your revenue.
Accurate financial tracking makes this process much easier. Many daycare owners use accounting software like QuickBooks or Xero to monitor their cash flow. However, childcare management platforms like brightwheel can streamline this process by automatically tracking tuition payments, late fees, and other income sources while connecting with your existing accounting systems.
Keep detailed records of both fixed costs (rent, insurance, utilities) and variable expenses (supplies, field trips, substitute staff). This information helps you understand your true profit margins and determine how much you can reasonably pay yourself without jeopardizing your program's operations.
Determining a fair daycare owner salary
Setting your compensation as a daycare owner can be challenging, but a strategic approach ensures financial stability for both you and your business. Here are key steps to help guide you:
- Research industry standards: Use salary websites, network with other daycare owners, or consult local childcare associations to understand typical compensation in your area.
- Consider key factors: Keep in mind that compensation varies based on location, program size, years of experience, and the services you offer.
- Account for your multiple roles: As a daycare owner, you likely manage administration, teaching, maintenance, marketing, and more. Factor in the value of each responsibility.
- Evaluate your program's capacity: Your ability to pay yourself depends on enrollment rates. A center at full capacity has different financial flexibility than one running at 80%.
- Include after-hours work: Don’t forget to account for the time spent on administrative duties, planning, and family engagement outside regular hours.
By taking these factors into account, you can determine fair compensation while supporting your long-term success.
Annual Budget Planner
Use this free template to create a high-level budget or business plan for your childcare program.
Methods of paying yourself
Once you've determined an appropriate amount, you'll need to choose how to structure your compensation. Three main approaches work well for daycare owners, each with distinct advantages.
Salary approach
Setting a fixed salary provides predictable income and simplifies budgeting for both personal and business expenses. You'll receive the same amount each pay period, regardless of seasonal enrollment fluctuations or unexpected expenses.
This method works particularly well for established childcare programs with steady enrollment and consistent cash flow. It also makes tax planning more straightforward since you know exactly what to expect throughout the year.
Owner's draw method
Taking owner's draws gives you flexibility to adjust your compensation based on your program's current financial situation. During strong months, you might take larger draws. When facing unexpected expenses or lower enrollment, you can reduce your compensation temporarily.
This approach requires more careful tracking and discipline. Document each draw meticulously and ensure you're not depleting your business's working capital or emergency reserves.
Combination approach
Many successful daycare owners use a hybrid model—taking a modest base salary for essential personal expenses plus periodic draws when the business performs well. This strategy provides some income stability while allowing you to benefit from your program's success.
For example, you might set a base salary that covers your basic living expenses, then take quarterly draws based on your program's profitability during that period.
Step-by-step guide to paying your daycare owner salary
Setting up a compensation system may take some initial effort, but once in place, it becomes a routine part of managing your business. Here's a step-by-step guide to make the process easier:
Open a separate business bank account
- If you haven’t already, open a business bank account.
- Keeping business and personal finances separate simplifies accounting and tax preparation.
Establish a regular payment schedule
- Choose a consistent payment schedule (weekly, bi-weekly, or monthly).
- Consistency helps with cash flow management and personal budgeting.
- Many owners align their pay schedule with staff payroll to streamline tasks.
Automate payments where possible
- Set up recurring transfers from your business account to your personal account.
- Automation ensures you’re paid regularly, even during busy times.
Set up payroll if using the salary method
- Formal payroll systems include tax withholdings and other deductions.
- Use payroll services or accounting software to handle calculations automatically.
Document all compensation
- Maintain clear records of every payment, whether it’s a salary or owner’s draw.
- Proper documentation is essential for tax season and tracking financial health.
Managing taxes and compliance
Paying yourself as a daycare owner comes with important tax obligations that require careful planning. Here's what you need to know:
Understand self-employment taxes
- As a daycare owner, you'll likely need to pay self-employment taxes on your earnings.
- These taxes cover Social Security and Medicare contributions, which are typically split between employer and employee in traditional jobs.
Set aside funds for taxes
- Regularly reserve funds for tax payments to avoid scrambling during quarterly estimates.
- A good rule of thumb is to save 25-30% of your compensation for federal and state taxes, though the exact percentage depends on your income and tax situation.
Work with an accountant
- Consider hiring an accountant experienced in small business taxation, particularly in the childcare industry.
- They can help you optimize your tax strategy, ensure compliance with regulations, and identify potential deductions.
Keep detailed records of business expenses
- Many costs associated with running your childcare program may be tax-deductible, including:
-
-
- Supplies
- Professional development
- Insurance premiums
- Equipment purchases
-
By staying organized and proactive, you can manage your tax obligations effectively while maximizing potential savings.
Reinvesting in your childcare program
While paying yourself is important, don't forget to allocate funds for business growth and improvements. A thriving childcare program requires ongoing investment in equipment, facility maintenance, staff development, and program enhancements.
Plan to reinvest a portion of your profits back into the business. This might include upgrading playground equipment, expanding your program capacity, implementing new technology systems, or providing additional training for your staff.
Consider setting aside funds for unexpected expenses or opportunities. Having a business reserve fund provides security during challenging times and allows you to take advantage of growth opportunities when they arise.
Some investments directly impact your ability to maintain competitive compensation. For example, implementing efficient billing and communication systems can reduce administrative workload, allowing you to focus on revenue-generating activities or strategic planning.
Tools and resources for financial management
Modern technology offers numerous solutions to simplify financial management for childcare programs. The right tools can save hours each month while providing better insights into your business's financial health.
Childcare management software like brightwheel offers comprehensive solutions that go beyond basic accounting. Brightwheel handles billing automation, payment processing, and financial reporting while also managing other aspects of your program like enrollment, communication with families, and staff scheduling.
Brightwheel's billing features particularly benefit daycare owners by automating invoice generation, processing online payments, and tracking outstanding balances. This automation reduces the time spent on financial administration and improves cash flow through faster, more consistent payments from families.
The platform's reporting capabilities also provide valuable insights into your program's financial performance, helping you make informed decisions about compensation and business growth.
Taking control of your financial future
Paying yourself regularly isn't a luxury—it's a business necessity that ensures your childcare program's long-term sustainability. By establishing fair compensation, managing tax obligations responsibly, and maintaining clear financial boundaries, you create a stronger foundation for both personal and professional success.
Brightwheel is the complete solution for early education providers, enabling you to streamline your center’s operations and build a stand-out reputation. Brightwheel connects the most critical aspects of running your center—including sign in and out, parent communications, tuition billing, and licensing and compliance—in one easy-to-use tool, along with providing best-in-class customer support and coaching. Brightwheel is trusted by thousands of early education centers and millions of parents. Learn more at mybrightwheel.com.