Financial experts agree that keeping as much cash on hand as possible is one of the most important things you can do to stay afloat. But how do you do that, especially in today’s environment? HINGE Brokers recently hosted a webinar that provided concrete strategies child care centers can use to enhance their financial outlook.
Kathy Ligon, Founder and CEO of HINGE Brokers, offered up ways for child care businesses to increase their revenue as well as reduce expenses. Before she began, she emphasized that “now is not the time to act in fear. It’s important to act bravely and boldly, and be okay making tough choices.”
Kathy first provided an overview of what a healthy school’s finances look like in a normal environment, to offer some context.
“Typically, financially healthy schools are those that have enrollment between 70-90 percent of licensed capacity,” Kathy said.
She then provided a breakdown of the average child care center’s expenses (pre-coronavirus):
- Staff Costs: 50-55 percent
- Operating Costs: 11-13 percent
- Facility Costs: 22-25 percent
- Administrative Costs: 2-4 percent
When it’s all calculated, businesses that are healthy see between 15-30 percent profit. But given the new state of the industry, child care businesses will be more expensive to run, meaning that their profit margins, which are already low, could sink lower.
To offset this change, Kathy recommended a variety of strategies to increase revenue and reduce expenses:
- Tuition rates and other revenue sources: Kathy said it’s important to charge a tuition rate that truly reflects the services you’re providing. She said that all too often, she sees centers lowering their tuitions to “stay competitive,” when the message parents receive is that the school isn’t as good as its competitors. “The important thing to remember is that you can’t grow if you aren’t charging the amount needed to run your program effectively,” Kathy said.
Kathy also talked about ways to secure extra revenue, such as subsidies, the Child Development Block Grant (a federal grant program that’s funneled through the states), the USDA food program and Head Start. She added you can explore bidding on opportunities to serve students enrolled in public school after school programs.
- Discounting: Kathy highly recommended that schools eliminate or reduce the discounts they offer as well as do away with free/vacation days (where schools charge by the day versus a flat rate). “We see that discounting accounts for eight to 10 percent of lost revenue,” said Kathy. “When you consider that most schools have a 15 percent profit margin, discounting can be an important area to address.”
- Rent and mortgage: Most landlords and banks are willing to work with you on your rent/mortgage. Kathy is a landlord herself, and talked about how her renters asked to have their rent paused for four months. She was able to accommodate this because she had called her bank and was able to defer her mortgage payments. “Banks and landlords are expecting your call, so it’s important to establish these types of arrangements to allow you to preserve as much of your cash as possible,” Kathy said.
- Food: Typically, food comprises approximately five to six percent of a center’s expenses. Kathy indicated she’s seeing a trend in some centers (particularly those in medium to higher income demographics) where parents pack their kids’ food for the day. Kathy acknowledged this may not make sense for everyone, but it could make a significant difference in your bottom line. She also suggested that you can explore reallocating your cook to other positions in the center, such as classroom support, cleaning, etc.
- Payment processing: One of the best ways to save money on collecting tuition is to implement automated payment processing. Kathy mentioned Procare’s Tuition Express as an example of a software that can enable this.
- Marketing strategies: Kathy indicated in a downturn, marketing is often the first budget to get cut, but that it’s a mistake to do so. “Marketing is a critical function to the success of your center, and it’s less expensive than a lot of your other costs centers,” said Kathy. “If you invest in cost-effective marketing now, I believe centers could be better off in January 2021 than they were in January 2020.”
- Supplies and services: Now is the time to evaluate your supplies and see where you can reduce their costs. It’s also the time, according to Kathy, to re-bid any services you have. These small changes can make a big difference over time.
To watch the webinar, click here.