Cash Flow Tips for Childcare Centers

Childcare Cashflow Tips

Managing cash flow is a vital step in creating a firm foundation for effective accounting practices. Here are cashflow management tips specifically designed for childcare businesses.

1. Understand What Cashflow is and Its Impacts

When starting a business, it’s easy to get wrapped up in gross income numbers and watching those increase or change with time. But you might have to increase tuition rates due to inflation changing the total expense of operating your center. In that case, the increase in gross earnings can have little impact on your bottom line.

You have to subtract expenses from revenue to see a more accurate depiction of how your business is doing financially. And at different times of the year, your expenses might be higher, such as at the start of the school year when you purchase classroom supplies or hire new teachers to meet expected student-to-teacher ratios.

To calculate your net cash flow, take the amount of money in your bank account at the start of a month, add in monthly earnings from tuition payments and then add any income from investments or financing.

2. Track Cashflow Projections

Cashflow projections will help you understand what your finances look like in the future. Will fixing the roof on your center harm your cash flow to where you can’t make payroll this month? If that’s the case, you need to have the foresight to finance that improvement to ensure you don’t lose teachers due to payroll problems.

And you need to know how your overhead will impact your cash flow in a few months. Creating these projections will guide you in knowing how much you can spend on operations and supplies and when you must increase tuition before you get into a challenging financial situation.

3. Use Software to Manage Accounting

Creating cash flow projections and understanding today’s impacts on your cash flow is much simpler when engaging accounting software.

While you’ve probably heard of QuickBooks and other major accounting technology, these tools are not designed specifically to meet the needs of childcare centers. And it’s one more software tool you have to pay for, which increases expenses and harms cash flow.

Instead, look to high-quality childcare software that includes accounting tools. One crucial aspect of your accounting technology is that it must automate invoicing to save time and ensure you collect accurate amounts based on flexible schedules, late charges and late-pickup fees.

4. Look for Ways to Increase Profits

Childcare centers have several options for ways to increase profits. These include:

• Raising tuition costs
• Evaluating how competitive you are in your market
• Increasing enrollment
• Adding new services, such as afterschool care

But increasing profits is just one way to improve cash flow. The other way is to reduce expenses. Look at every dollar you spend and evaluate if you can decrease that expense or eliminate it entirely.

Price shop all supplies and services to make sure you’re spending efficiently. Use technology where you can to save time on price shopping and build efficiency into everything you do.

Ensure timely invoice payments by digitizing the process. Waiting days, weeks or even months for tuition payments will have enormous impacts on your cash flow.

5. Work with a Skilled CPA

Adding another expense area by hiring another specialist can feel daunting. But ultimately, working with a CPA can help you ensure you are creating accurate projections and know how your cash flow will change from month to month.

Taking advantage of tax breaks and other financial opportunities will help you use your resources as efficiently as possible. A CPA can guide you in lowering expenses, optimizing income and projecting when it might be time to adjust prices to prepare for financial changes in the future.