“Revenue is vanity, profit is sanity. But cash is king.”
The origin of this famous business quote remains disputed, but its relevance has never been greater, especially in running a childcare business.
All businesses face a common challenge: revenue rarely follows the same pattern as costs. This discrepancy becomes particularly pronounced at month-end when payroll pressures often mount. Ensuring that sufficient cash is available during these times can often be a significant challenge.
In childcare businesses, this issue is magnified by the need to maintain high standards of care and education, which can lead to fluctuating expenses. Effective cash flow management is crucial to be able to navigate these financial pressures and ensure the smooth operation of the business.
Managing Cash Flow In Your Childcare Business
Of course, a significant portion of your income comes from your local authority in the form of funding. However, you now have the opportunity to charge a “sustainability” fee to ensure the long-term viability of your childcare services. It’s vitally important that you invoice for these fees regularly and, just as crucially, that the revenue generated from them is collected promptly.
It’s a controversial topic, but many profitable settings charge for these extras and the official government guidance is clear:
“Government funding is intended to deliver 15 or 30 hours a week of free, high-quality, flexible childcare. It is not intended to cover the costs of meals, other consumables, additional hours or additional services.
Local authorities should:
Ensure that providers are aware that they can charge for meals and snacks as part of a free entitlement place and that they can also charge for consumables, such as nappies or sun cream, and for services such as trips and specialist tuition. Local authorities should ensure that providers are mindful of the impact of additional charges on parents, especially the most disadvantaged. Providers, who choose to offer the free entitlements, are responsible for setting their own policy on providing parents with options for alternatives to additional charges, including allowing parents to supply their own meals or nappies or waiving or reducing the cost of meals and snacks.
Ensure that providers and parents are aware that the Early Years Pupil Premium (EYPP) provides additional funding to providers to support eligible children in early years settings and that the Disability Access Funding (DAF) supports eligible, disabled children’s access to the entitlements. Subject to parliament passing the relevant regulations, eligibility for EYPP and for DAF will be extended to all children accessing the free entitlements from April 2024.”
Maximising Revenue Streams In Childcare Settings
With my other hat on, I am involved with acquiring SME companies and reviewing the accounts of many businesses. Almost without exception, I am always amazed at how much money is tied up in their accounts receivable (debtors) ledgers. This is money owed to them by their customers. My first question is always the same: “Why is your money sitting in your customer’s bank account instead of yours?”
If you find yourself short of cash at the end of the month, the first place to look is your aged receivables report, sometimes called an aged balance or aged debtor report, from your nursery management software. This report highlights who hasn’t paid, allowing you to address the issue with those parents.
Effective Financial Strategies
The next step though is the most important, and the one that is so frequently missed by setting owners. You need to ensure that these balances don’t re-occur and you do that by making sure that automatic payments are configured within your nursery management software, ideally using Direct Debit.
Our Parenta Pay service, which is included in our Abacus Nursery Management Software, provides both a Direct Debit and a credit card fee collection system providing an easy solution. Some of the other nursery management software companies provide something similar.
We’re currently offering a new laptop and tablets for all new software customers (conditions apply) so if you need new IT equipment and want to ensure that “cash is king” in your business. Find out more HERE
