As childcare owners ourselves, we truly understand the challenge of mastering that fine balance between quality education and centre profitability.
In this blog, we discuss some financial metrics and key performance indicators (KPI’s) to track in your childcare business.
Successfully navigating the course of your childcare business and making sure you have mastered that fine balance between quality education and centre profitability is crucial.
If you’re an owner with a teaching background, you may find you often put quality (ratios, resources, non-contact time) before profitability.
If you’re an owner with a business background, you may find it challenging to balance what your teachers are telling you is required for quality vs what you would like in terms of profitability.
Either way, it’s easier to manage this when you have accurate and regular information and data about how your childcare business is tracking.
While most owners have robust operational measures in place (eg: enrolments, ratios etc), tracking financial metrics and key performance indicators (KPIs) allows you to see how your operational measures are then coming through into your profitability results and available cash.
In other words, your financial metrics will allow you to
- easily see if your centre is actually making money
- thrive (rather than just survive) between MOE funding payments
The key to achieving this is having some fundamentals in place. Here’s what we suggest:
1. Budget
At the start of each financial year, create a budget for the upcoming year. Then load that into Xero so that you can see how you’re tracking against that budget throughout the year. Don’t wait until the end of the financial year to understand where your centre is at, and how things could have been better.
2. MOE Journals
MOE funding payments come in only 3 times a year. If we leave that income in the month it’s received, then our financial metrics will tell us we made a huge profit in month 1, but a loss in months 2, 3 and 4. Until the next payment comes in.
We suggest ‘allocating’ those MOE payments to the correct month (and accruing the missing washup) so that in any month you look at your financial metrics you can see accurately whether you made money in any given month. Talk to us about our MOE journal services.
3. Monitor your cashflow and ongoing cash position
Good cashflow management is all about balancing the process of cash coming into the business and cash going out of the business. Recording and monitoring your cash position is easy with the latest cloud accounting software and cashflow apps, so it’s easy to have up-to-date information at your fingertips.
With a large proportion of our income (MOE Funding) coming in only 3 times a year, it’s critical that you’re monitoring this cash in real time on a regular basis. Don’t rely on your bank account to tell you how you are going – it is not a good look just before the next funding payment!
With real time metrics on your cashflow position, you will be able to make informed decisions about spending, payment of bills and where additional cash may be needed.
4. Debtor days and aged debt
When families fail to pay your invoice on time, that creates an aged debt – money that you should have received but which has yet to be paid. An aged debtor report shows you which invoices are unpaid, which customers haven’t paid, and the total size of this debt.
A good centre will run in credit – it is possible.
5. Staff to income ratio
A good indicator of keeping your staff costs under control is staff to income ratio. To calculate this, take your total salary and wages for the month and divide this by the income (MOE funding + parent fees) for the same month.
This does not take into account whether you allocate your MOE Funding to the correct month, and what proportion parent fees are to your total income.
We have a better way of calculating what your wages should be, that is tailored to your centre.
These are just our financial metrics and KPI starting points and, depending on your specific circumstances, you may want or need other KPI’s in place. Keeping a close eye on these financial metrics and KPI’s gives you the optimum insight into the performance of your business – before it’s too late.
We’d welcome the chance to chat about how Pathfinder Solutions can help you put these essential trackers in place. Please do get in touch.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
Call us for an obligation-free chat, we’d love to help!
