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If you own a childcare business and don’t know your numbers, you’re doing yourself an injustice.
Your numbers are the key indicators that show how your nursery is doing, and whether you’re on track for a sustainable and successful future. It’s no good waiting for a yearly update from your accountant. By then it might be too late to turn things around if your business isn’t performing as well as you thought it was.
But what numbers are we talking about? How do you get to know your numbers?
This blog will tell you what figures you should look at regularly to keep control of your finances…
It’s no good just looking at your bank balance to assess the finances of your nursery business. We all know how much it can fluctuate depending on whether you’ve just collected fees, or have paid out for a new piece of equipment. If you look when cash flow is high you might give yourself a false sense of security.
For a full picture of what’s really happening, assess the following…
Working out a ratio percentage of your staff costs to your real monthly income shows how profitable your childcare business is for any month. It’s not that complicated to work out either. You just need to know your monthly staff costs (including national insurance, pension costs and the owners income), and your monthly income amount (fees, funding, etc.).
The magic formula is…
Your staff costs x 100 = A
Then divide A by your income amount.
For example, if you pay out £5k employee costs per month and take in £12k the sum will be £5000×100=£500,000
£500,000/£12,000=42%
The closer to 50%, or less, you are the better.
When the profits your nursery business generates are equal to your costs, you’re breaking even. It’s a handy figure to know, because if you’re at least breaking even, you’re not making a loss.
Often company owners will work out their break-even figure at the start of their business venture, but then it’s left at that. But things change. How much are your utility bills these days compared to a couple of years ago? If you haven’t increased your income to match your rising costs, you may find your break-even figure is no longer what it used to be.
Ideally, work out your overall, or individual room, break-even figures annually to stay on top of your nursery business numbers.
A quick method to do this is…
Annual costs/Weeks = Costs per week.
Costs per week/Number of sessions being used per week = Costs per session.
Costs per session/Hours per session = Hourly break-even figure.
For example…
Using a 50 place nursery with 70% occupancy = 350 sessions filled
£425,000/51 weeks = £8333
£8333/350 sessions filled = £23.81
£23.81/5 hours per session = £4.76
No one wants to work for nothing, but that’s exactly what you could be doing if you don’t take a proper look at your monthly occupancy levels alongside your profit-and-loss figures.
If your childcare business appears to be a sellout success, with all, or most of your sessions filled, but you aren’t making a reasonable profit it’s a pretty clear sign that your prices aren’t high enough, and need to be increased.
For the example above, if you’re charging £6.50 per hour or more, you will be making a reasonable profit.
A profit-and-loss sheet is something you usually see just once a year, after your accountant has tallied up your year-end figures. But if you really want to make sure things are going well, a monthly profit-and-loss evaluation is a great thing to do.
Building up a clear picture can take time, so don’t rely on one month’s numbers. Some months you might make a loss, other months you’ll make a profit. Knowing what happens each month will allow you to be more financially prepared throughout the year.
There’s no set month you should start recording your costs and income, and really there’s no time like the present. It doesn’t have to be complicated either. Just a simple spreadsheet is good enough to record all your monthly expenses against your earnings, to give you a monthly total. If there are certain months that are lower than expected, you’ll be able to identify why that might be and possibly implement changes to help even things out.
If you want to run a successful and profitable childcare business, keep constant track of your enquiries. If you don’t, you won’t be aware when they suddenly drop in number, and you could find yourself with an empty nursery.
To keep ahead of the game, you should know exactly how many enquiries turn into visits, and then become customers, on at least a monthly basis. That way, if things take a dramatic downward turn you can quickly react to rectify things, such as increasing your marketing and social media presence.
The best way to take more notice of your numbers is to track your monthly profit-and-loss figures. To get started, click here to download our FREE profit-and-loss sheet from our BØRN Manager Operations Manual.
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