How to Ensure the Long-Term Financial Sustainability of Your Childcare Business

It can be difficult to ensure the long-term success of your childcare business, especially in times of economic hardship. By planning ahead and making smart business decisions, you can make your childcare center or daycare financially sustainable and set your business up for success.

In this article, we'll discuss practical tips and insights that can help you navigate the financial landscape and build a thriving and financially stable childcare business.

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Focus on business fundamentals

Review your childcare center's business plan and align your business goals with key business fundamentals. This will help you evaluate your finances and quickly adjust when you need to adapt to changes in your center's income or the childcare industry.

Regularly assess your center's performance in fundamental aspects of your business, including marketing, professional development, and finance management. Using marketing to connect with your community, keeping track of your center’s income and expenses, and ensuring your staff receives the latest training will help you manage your business, draw families to your childcare center, and increase your cash flow so your center runs smoothly.

Monitoring how your center's goals align with the following business fundamentals can help you create a successful, financially sustainable childcare program:

• Understand the market: Understanding the current market is crucial when running a business. Does your community need a childcare center, or is the area oversaturated? If there are multiple childcare centers in your community, you will need to differentiate your business from the more established centers in your community. Determining your center's unique selling proposition—what sets your business apart from other childcare centers and daycares in your community—will help you stand out in the childcare market and attract families to your business. Why should families choose your childcare center rather than one of your competitors' centers?​​​​​​​

• Manage finances: Keeping track of your childcare center's finances and avoiding overspending will ensure that you can cover your expenses, pay your staff, and save money for an emergency fund for your center. You can use bookkeeping software and childcare management software like brightwheel to track your income and expenses and simplify your center’s record keeping processes. 
• Market your center: Marketing your childcare center well will help families discover your services so you can enroll more children and increase your center's revenue. Developing a marketing plan for your center will give you a clear strategy for positioning your childcare center or daycare as the best choice for your community and sharing your services with new families.
• Train your staff: Your educators' skills and childcare knowledge need to be refreshed regularly. Provide your staff with training opportunities that teach them techniques and teaching strategies that are supported by the latest child development research and improve their understanding of procedures that keep your children healthy and safe.

Use spreadsheets to properly budget for your daycare business

Unexpected expenses can lead to financial instability for your daycare business. You can prevent the stress caused by unforeseen costs by tracking your income and expenses in a spreadsheet to create an operating budget for your center. Using a spreadsheet to create your budget will allow you to sort your spending into categories (e.g., sorting by date or expense type) and view the sums of each category. You can also use formulas in your spreadsheets to automatically update calculations for your total income and expenses when you add new credits or debits to your budget.

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Your center's operating budget can include:

• Your pricing and fees (e.g., fees for tuition, services, enrollment, late payments, and late pickups)
• Grants that your center has applied for and received
• Equipment costs
• Operating expenses (e.g., utilities, rent, supplies, salaries, insurance, and licensing and renewal costs)

Using spreadsheets and record keeping software like brightwheel’s billing feature to track your finances will help you monitor your daycare's cash flow so you can see exactly where your money is coming from and where it's being spent. Review and adjust your center’s budget spreadsheet regularly.

Maximize tax benefits

Maximizing your tax benefits can help you save money that can be s et aside for the following year's expenses. When preparing for tax season, you should look for ways to lower your childcare center's tax liability to save as much money as possible.

You can maximize your tax benefits by deducting your childcare center or daycare's business-related expenses, including:

• The cost of supplies, rent, utilities, and maintenance
• Business transportation costs (e.g., vehicle mileage, vehicle repairs, tolls, and parking fees)
• The cost of meals provided to your children
• Staff salaries and employee benefits
• Staff training costs
• Advertising and marketing expenses
• Equipment costs

Work to maintain, then increase revenue

As a childcare center owner, you need to constantly bring in revenue to keep your center financially sustainable. It’s important that revenue consistently comes in every month. Just as your expenses, such as rent and payroll, don’t pause, your revenue can’t either.

Maintaining consistent revenue for your childcare center will ensure that you can provide children with the best care and pay for planned and unplanned expenses that your center will incur. You can maintain a consistent revenue for your childcare center by charging families tuition and fees and creating multiple revenue streams for your business. 

Maintain revenue via tuition

One of the primary ways providers can maintain revenue is by charging families tuition. Although there’s no “right” way to manage tuition, there are a few common methods to consider:

• Full-time tuition: This is the most common method where parents are charged a fixed monthly or weekly fee for full-time care, typically based on the number of days their child attends per week.
• Part-time tuition: For families who require less than full-time care, offering part-time tuition options can be beneficial. Providers can charge a reduced fee based on the number of days or hours the child attends.
• Drop-in or hourly rates: Some parents may need occasional or irregular childcare services. Offering drop-in or hourly rates allows them to pay for the specific hours or days they need, providing flexibility and catering to their individual needs.
• Contractual agreements: Childcare providers can offer contractual agreements with families, allowing them to secure a spot for their child for a set period, such as a semester or academic year. This ensures consistent enrollment and revenue for the provider.
• Registration or enrollment fees: Charging a one-time registration or enrollment fee is a common practice in the childcare industry. This fee helps cover administrative costs and secures a spot for the child.
• Late pickup fees: To discourage parents from picking up their children late, providers can implement late pickup fees. This incentivizes punctuality and compensates staff for their additional time.

Create new revenue streams

In addition to collecting tuition and other fees, you may want to explore new revenue streams for your childcare business. Here are some effective ways to diversify revenue and expand offerings:

• Enrichment programs: By offering enrichment programs, such as music, art, dance, or language classes, childcare centers can attract a wider range of families and provide additional learning opportunities for children. These programs can be offered as optional add-ons, allowing parents to choose the activities that best suit their child's interests.
• Summer camps: During the summer months, when many families are seeking engaging and supervised activities for their children, offering a summer camp can be a great revenue booster. Structured around fun and educational themes, these camps can include outdoor adventures, arts and crafts, sports, and other age-appropriate activities.
• After-school programs: Extending services beyond regular childcare hours by offering after-school programs can be an excellent way to generate additional revenue. These programs can provide homework assistance, tutoring, and engaging activities that keep children stimulated and entertained until their parents pick them up.
• Parent workshops and events: Organizing workshops and events for parents not only strengthens the bond between the childcare center and families but can also serve as a revenue stream. Topics can range from parenting tips and early childhood development to health and nutrition. Charging a nominal fee for participation in these events can contribute to the center's overall revenue.
• Birthday parties and events: Utilize your childcare center's facilities and expertise by offering birthday party packages or hosting special events. Providing a safe and engaging environment for children's celebrations can be an attractive option for families looking for convenient party venues, generating additional income for the business.
• Before and after-school care: Collaborating with local schools to offer before and after-school care services can be mutually beneficial. This allows working parents and guardians to have extended care options for their children while providing the childcare center with a stable source of additional revenue.

Reduce your expenses

In addition to finding new ways to bring in revenue, you can proactively consider ways to limit your expenses. By implementing smart cost-saving strategies, you can improve your financial stability while maintaining your quality of care. Here are six actionable ways to reduce expenses:

• Energy efficiency: One significant expenditure for childcare centers is energy consumption. You can reduce utility costs by investing in energy-efficient appliances, installing programmable thermostats, using LED lighting, and ensuring proper insulation. Additionally, encouraging staff to be mindful of energy usage and turning off lights and electronics when not in use can make a substantial difference.
• Supply management: Implementing efficient supply management practices can help you save money on essential items like diapers, wipes, cleaning supplies, and art materials. By buying in bulk or sourcing from wholesale suppliers, childcare centers can negotiate better prices and reduce expenses over time. Regularly reviewing inventory levels and minimizing waste can also contribute to cost savings.
• Staff training and development: Investing in the professional development of staff members is crucial for maintaining a high-quality childcare program. However, you can reduce training expenses by exploring free or low-cost training options, such as online courses, webinars, or workshops offered by local organizations. Additionally, leveraging internal expertise through peer-to-peer training or mentoring programs can further enhance staff skills without additional financial burden.
• Streamlining administrative tasks: Administrative tasks can be time-consuming and costly. By implementing digital solutions such as childcare management software like brightwheel, you can automate processes like attendance tracking, billing, and record keeping. This not only reduces the need for manual paperwork but also saves valuable staff hours, allowing them to focus on more impactful aspects of their role.
• Collaboration and shared resources: Collaborating with other childcare providers in the community can lead to cost savings and resource sharing. Centers can explore joint purchasing agreements for supplies, collaborate on marketing efforts, or even share equipment and facilities. By working together, providers can pool their resources, reduce individual expenses, and create a stronger network within the childcare industry.
• Vendor negotiations: Many vendors may be willing to work with you on expenses such as your rent, mortgage, loan payments, contracts for your phone, internet, and cable, and insurance premiums. Explore options such as extended payment terms, bulk discounts, or even renegotiating contracts to secure more favorable pricing.

Maintain a positive mindset

Just as important as understanding your business financials is maintaining a positive mindset. Doing so will help you make decisions with more confidence, decrease your stress levels, and allow you to be more present and impactful in all areas of your life. Here are a few tips to help you maintain a positive mindset:

• Reflect on how far you’ve come with your childcare or preschool center. 
• Acknowledge the positive impact your efforts have on your community. 
• Focus on what's in your control. 
• Build a network of trusted colleagues, peers, friends, and family to support you along the way. 

Top 10 tips for running a financially successful daycare business

Follow these expert tips to ensure your daycare business is financially successful for years to come.

1. Invest in training to reduce staff turnover

According to the American Academy of Pediatrics (AAP), “young children—especially infants and toddlers—need stable, positive relationships with their caregivers to thrive, and staff retention helps to maintain those strong relationships.”

Investing in high-quality training and professional development resources for your staff will give them the tools they need to provide the best care to the children and feel satisfied and supported at your center, reducing your center’s staff turnover and increasing the quality of your services.

2. Create an engaging learning environment that encourages learning through play

Research shows that children gain a better understanding of concepts when they’re taught through play. According to the National Association for the Education of Young Children (NAEYC), “playful learning in the form of guided play, in which the teacher builds in the learning as part of a fun context such as a weather report, keeps the child’s agency but adds an intentional component to the play that helps children learn more from the experience.”

Creating a fun environment and incorporating play into your curriculum will help children enjoy their time at your center, which may, in turn, help you market your childcare center. When children tell their families about what they’ve learned and the fun they’ve had at your center, it may encourage them to recommend your center to other families that need childcare, which can help you increase your enrollment through word-of-mouth marketing and increase your revenue.

3. Keep your center clean and well-organized

Maintain a clean and well-organized childcare center to keep yourself, your staff, and the children in your care safe. Following health and safety regulations, such as keeping a first aid kit on the premises and storing chemicals in labeled containers in locked cabinets will protect you from costly liabilities that you could face if a child is injured at your center.

According to the National Resource Center for Health and Safety in Child Care and Early Education, “early care and education programs should store any potentially toxic substances behind doors/cabinets with child-resistant locks/latches. A locked cabinet or room that children cannot open or enter is best, but it must be locked all the time.”

4. Develop partnerships in your community

You may want to consider partnering with other childcare directors and daycare owners in your community to grow your connections and increase your enrollments. Offering to refer families to other centers’ programs may lead to them returning the favor and referring families to your center when they don’t have the capacity for new clients.

NAEYC suggests hosting a joint open house with other childcare centers in your community: “Collaborate with each other, and perhaps hold a combined open house for all programs in your area on a specific day so parents can tour all the childcare programs in the area in one day.  Rather than seeing each other as competitors, working together helps everyone in the long run.”

5. Maintain open communication with families

Maintaining open communication with families and discussing important information about their child’s performance at your center will help families trust you and your services, which could lead to increased enrollments.

NAEYC suggests inviting your children’s parents and guardians to ask questions that they may have about your program: “Offer opportunities at the program and online for families to communicate any questions, concerns, comments, or suggestions they may have.” Families that have learned to trust your program may consider re enrolling during the following school year or enrolling more of their children at your center.

6. Update your curriculum

Creating a research-based curriculum that meets the latest education standards will ensure that you’re teaching children lessons that are backed by current child development and early childhood education research.

According to the Head Start program, “a research-based curriculum promotes domain-specific teaching practices that are effective in supporting positive child outcomes.” Telling families that you teach a research-based curriculum will position your center as a high-quality program, which will help you gain more enrollments and increase your revenue. 

7. Use social media to promote your center

You can use social media to raise awareness of your center, attract new families to your business, and give updates to your children’s families. NAEYC recommends sharing educational posts on social media, such as posts about “your teaching philosophy and your ideas for families who have children with challenging behaviors, or fun things families can do at home to encourage children’s learning.”

Creating a business account for your center on social media is a great way to start conversations with your community, share information about your location and hours of operation, and introduce your center to new families.

8. Ask families to provide feedback

You can ask families to share reviews and feedback on your childcare center on social media and your center’s website. Customer reviews can provide credibility for your services and lead to more families enrolling their children in your center.

9. Acknowledge and celebrate staff members’ achievements

Acknowledging and celebrating your staff members’ achievements, such as new promotions and certifications, will help your staff feel appreciated as valued members of your center’s team.

Celebrating your staff members creates a positive work culture that encourages productivity and growth. A positive work culture reduces staff turnover, so children continuously receive the best care and education from highly trained educators. 

1. 10. Optimize your employees’ schedules

You can reduce your center’s expenses by simply reviewing your employees’ schedules to make sure their time is being spent efficiently. Keeping track of your employees’ hours and optimizing their schedules can help you eliminate unnecessary overtime costs and ensure that your center is fully staffed during peak times.

Publish an annual report to share your program's financial status

Publishing an annual report for your childcare program is a strategic step towards ensuring long-term financial sustainability. This report is crucial in highlighting your program's achievements, contributions to the community, and financial health, serving as a bridge between your program and its stakeholders—staff, families, board members, and partners. By presenting your story with transparency, you build trust and strengthen relationships. Here ’s how to create a compelling annual report that resonates with your audience and aligns with sustainable financial practices.

Showcase your achievements and community contributions

Begin by recounting the milestones your program has reached over the past year. This might include increased enrollment, successful events, or innovative educational initiatives. Use specific examples and metrics, like the number of students served or awards received, to vividly illustrate your accomplishments.

Highlight your community impact by detailing collaborative projects and outreach efforts. This not only proves your program’s value but also underscores your commitment to fostering a supportive community, a key component of financial sustainability.

Present your business financial health

Financial transparency is essential for building trust and ensuring sustainability. Provide a straightforward financial overview of your business that includes income, expenditures, and budget allocations. Use charts and graphs to make this data accessible.

Explain any significant financial changes and their implications for future planning, referencing strategies discussed in this article above. If applicable, describe how funding sources like grants are supporting specific initiatives.

FAQ

What is the best profit margin for a successful daycare?

When it comes to determining the best profit margin for a successful daycare, there are varying opinions and factors to consider. According to IBISWorld, the average profit margin for a daycare center is around 15% which is higher than the average for most other industries.

Ultimately, each daycare business must evaluate its specific circumstances and goals to determine a profit margin that aligns with its operational costs and growth objectives.

How can I make my daycare more profitable?

There are many strategies that childcare center owners can implement to make their programs more profitable. Some ideas include increasing the number of children that are enrolled at their center, raising families’ tuition rates and fees, or offering workshops and classes to families outside of normal business hours. 

Is the daycare industry growing?

The daycare industry is growing steadily. According to a report by Verified Market Research, the daycare industry is projected to reach a market size of $436.63 billion by 2031, with a compound annual growth rate of 9.31% from 2024 to 2031.

Who is the target audience for a daycare?

A daycare’s target audience is the parents and guardians of infants, toddlers, and young children in your community. When marketing your daycare, you can create messaging that addresses the needs of these parents and guardians to present your program as a solution that can meet their needs.

How do you scale a daycare business?

Scaling your daycare business—growing your business so you can provide more services and better care to more families—requires strategic planning. It’s important to ensure that your growth aligns with the goals, mission, and values of your business.

Before you scale your daycare business, you need to have a financial plan for your growth that factors in your hiring budget, additional facilities you may need, and operational costs you may incur while scaling.

After you have a financial plan in place, you need to attract new hires with high-quality training, professional development opportunities, and strong marketing.

If your plans to scale your business include relocating to a new facility, you’ll want to update your licensing documents and receive new fire and safety inspections. Consult your state’s childcare licensing department for more information on the requirements for relocating your daycare business.

Are daycares affected by recessions?

What is the average cost of daycare in the US?

According to Child Care Aware® of America, the national annual average price of child care in 2022 was $10,853, a 1.6% increase over the national average childcare price in 2021.

Final thoughts

It can be difficult to plan for your business's future, but by investing time, resources, and energy into growing your income, supporting your staff, and marketing your services to families, you can create a flourishing daycare business that can withstand economic struggles and grow with your community and the children you provide care for.

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.