How Childminders Can Make Sure Their Finances Add Up
Understanding your costs is a vital part of your business plan, explains Sue McVay…
- by Sue McVay
How confident are you in your financial management skills? Of almost 500 childminders responding to a PACEY survey, four out of 10 told us their confidence was low.
Now that 30 hours is here – and indications are that the rate of funding falls short of private rates in many local authority areas – it is more important than ever that childminders focus on their financial skills so that they can build sustainable businesses for the future.
Understand your costs
“Writing a business plan is one of the best ways to help get into the mindset of a small business owner,” says Jon Hopper, commercial director for retail business banking at Lloyds Bank, which worked with PACEY to develop Business Smart, a free online resource for childminders.
“This has the ability to quickly highlight any issues in your planning and allows you to make your mistakes on paper, rather than in your business.”
Understanding your costs is a vital part of your business plan. Some costs will be fixed (for example, rent or mortgage, utilities), whereas others will vary depending on the number of children in your setting (eg food, craft activities, staffing costs).
There will also be additional annual costs such as training, insurance, large equipment costs as well as leaving room for contingency – that vital ‘just in case’ money. Try PACEY’s free childminding costs calculator to help get you started.
Look ahead
Next, think about the possible increases to your costs that lie ahead – if you are employing staff you need to consider the National Living Wage and National Minimum Wage and other costs (eg pension) – and what about increases in mortgage/rent and food?
You also need to think about other costs, such as equipment you need to replace or training/CPD needs for the future.
Armed with this information, research what others are charging in your area. If you haven’t reviewed your prices for a while, now may be the time to take a good hard look at what you are offering compared to others.
Does your setting offer something that others don’t – a large garden with lots of play equipment, or additional staff or assistants, for instance?
Having a good understanding of your costs will also help you decide whether to take on funded places – or how many places to offer. This is just what Kent-based childminder Helen White did following a review of her finances.
“The rate the local authority pay for funded hours is not enough to match my rate, but I found it straightforward to explain to parents why I have to charge for meals, nappies and other services,” she says. “As they have seen such a reduction in their weekly childcare costs, they have been happy with that.
“Don’t be afraid to be clear with parents about charging,” Helen advises. “They can appreciate you being open and honest – and it’s helpful if everything is clearly listed on invoices.”
Reviewing your finances regularly is vital; checking throughout the year against your financial forecast will help you to stay on track. It will also make it easier when it comes to completing your annual tax return.
“One of the potential problem areas for small businesses, especially those starting out, is cash flow,” Jon says. “It’s vitally important in the childcare sector to have a robust payment policy to avoid issues like late payment.”
Invoicing monthly and in advance can help, and add any extras from the previous month to the new invoice (for example, any extra hours or trips). Also make sure your contracts are watertight when it comes to dealing with late payments.
PACEY contracts include useful guidance notes to help you negotiate and agree terms with parents or carers.
Use technology
Gone are the days when you need to wade through piles of paper and lever arch files to complete your financial review. Using an online system can help you to stay on top of the paperwork and helps you to see at a glance where the gaps are. Online digital solutions such as Kinderly can also make invoicing quick and efficient.
While we’re talking of online – do you still have parents/carers who pay you by cheque? Encouraging them to pay by BACS or direct debit will help keep your business buoyant.
And if times do get tough – keep at it. “The best bit of advice I give to small businesses,” Jon says, “is what my son’s karate sensei told him when he was seven: ‘A black belt is just a white belt who didn’t give up.’”
Sue McVay is Director of Partnerships at PACEY. More tips and guidance on building and growing your childminding business can be found at pacey.org.uk/business.
