Daycare Financial Plan

Are you planning to build a safe and supportive environment for children?

Well, starting your own daycare business can be an exciting and rewarding venture filled with good opportunities to help young children learn and grow!

But before you start, you’ll need to plan your finances carefully and understand the fundamental aspects of your daycare’s financial success and sustainability.

That’s why it’s crucial to create a solid financial plan!

If you’ve never done financial planning before, the process might seem intimidating in the first place. But not to worry; this sample daycare financial plan will help you get started.

Daycare Financial Outlook

Before diving right into financial planning, it’s essential to explore the financial landscape of the daycare industry.

In recent years, the daycare services market has experienced steady growth because of the increasing number of working parents and growing awareness of early childhood education.

Here are some key facts that you may keep in mind:

• The worldwide child daycare services market reached a total value of $310.3 billion in 2023 and is expected to reach around $332.51 billion in 2024, with a growing CAGR of 7.2%.
• In the United States, the child daycare market was valued at around $59.87 billion in 2023 and is expected to surpass $88.22 billion by 2033, with an annual growth rate of 4.3%.
• Last year, the US daycare industry hired approximately 1,377,228 individuals dedicated to nurturing young minds.
• Surprisingly, these caregivers are paid a staggering $29.5 billion in wages, and the average wage per daycare worker is $1 million.

So, there is enough scope for new daycare businesses to emerge and thrive in this competitive marketplace.

Now, without further ado; let’s get started on how to create a successful financial plan.

1. Calculate Business Startup Costs

Once you’ve decided to start a daycare business, it’s crucial to have a clear understanding of your finances, right? So, you’ll need to calculate the daycare startup costs very first!

You may start by identifying all the initial expenses associated with your daycare, including facility rental or purchase, renovations, equipment, supplies, insurance & licensing fees, marketing, and working capital.

You can also research local market conditions and industry benchmarks to evaluate the typical costs of opening a new daycare. This will help you get accurate estimates.

Try to be clear and comprise every potential cost, no matter how small it is. You can make a specific list of all the expenses, as shown in the below table:

So, having a fair idea of startup costs will help you create a proper budget and determine the necessary capital to launch your business successfully.

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2. Determine Financing Requirements & Strategy

Sometimes, people don’t have enough money to start their own business. So, they might need to ask for help from others to get the initial investment.

For your daycare venture, you may evaluate the current monetary position and determine how much startup capital you’ll require to fund your business. Also, assess various financing options and develop a clear strategy to secure funding.

Here are a few funding options you may consider:

• Bank loans
• Private investors
• Grants
• Partnerships
• Venture capitalists

For each option, you have to evaluate the terms, interest rates, and repayment methods. This will let you devise a financing strategy that aligns with your investment goals and risk tolerance.

Then, you can decide which funding option is the most appropriate for your daycare.

Furthermore, while seeking credit from banks or investors, you’ll need a professional document that projects how your daycare’s financial modeling works. It will assist potential lenders to have a better idea of your business.

3. Understand Your Business Model

Developing a scalable business model is a crucial aspect of a financial plan. This is something you have to decide before you start running your business.

It is a strategic framework that defines how you generate income, manage expenses, and reach your financial objectives.

Here is a list of different daycare business models you may consider:

• Home-based daycare
• Center-based facility
• Prekindergarten programs
• School-age childcare programs

While deciding on any of the above models, you have to understand their financial considerations, including revenue potential, capital investment, operating expenses, and profit margins.

This will help you make well-informed decisions and achieve your financial goals in the long run.

4. Identify Revenue Streams

Identifying your business revenue streams is an essential part of maximizing profitability. So, try to diversify your income sources within the daycare market and create a robust portfolio.

It will help potential investors or lenders determine how much revenue your business intends to generate over the next few years.

For instance, you may include the following revenue streams in your daycare financial projections:

• Tuition fees
• Extended hours
• Transportation & meals
• Enrichment programs
• Summer camps

Doing so will help your business to maximize its income potential, better meet the client’s needs, and ensure long-term success & viability in the child daycare industry.

5. Market Analysis and Pre-Assumptions

A successful business requires a comprehensive market analysis to gain valuable insights into the local business landscape.

While writing a daycare business plan, you’ve already conducted thorough market research and got a better knowledge of the target market, customer demographics, industry trends, and competitors.

So, it’s time to use that knowledge to prepare a financial forecast and make realistic assumptions about registration rates, average tuition fees, facility maintenance charges, staff salaries, and operating costs.

Here are a few key components that you should include in your plan:

Pricing Strategy

When it comes to devising a pricing strategy, there’s no bound law. Yet, you’ll need to analyze a few factors, such as your daycare offerings, the quality of your services, the age groups you cater to, and additional amenities offered, to determine optimal pricing.

You may also conduct thorough market research to learn the prevailing market rates and set competitive yet profitable rates.

Remember, your prices should reflect the value of your daycare services and still help you generate sufficient returns on your investment.

Sales Forecast

A sales forecast is a primary element of any business, serving as the cornerstone for its profitability and growth.

It helps you estimate the future sales volume of your daycare enrollment and revenue based on market demand, marketing efforts, facility capacity, local demographics, and pricing strategy.

You can analyze historical sales data and industry trends to predict the revenue generated from tuition fees, enrollment deposits, and any additional services or programs your daycare offers.

Business Expenses

Generally, business expenses are operating costs or day-to-day expenses that will keep your childcare facility running smoothly.

For your daycare business, you may encompass all the anticipated expenses, such as rent or mortgage payments, renovation fees, utilities, taxes, insurance,  staff salaries,  equipment, maintenance, and administrative costs.

Apart from that, you may consider a few factors, like market trends, inflation rates, seasonality, and industry standards, while estimating your business expenses.

Here, you should note one thing—you must account for probable cost overruns or unexpected expenses during business operations. So, be conservative in your financial projections.

6. Make Financial Projections

If you want to attract investors, let the numbers do the talking. This is so because potential investors or stakeholders will look at the financial reports once and decide whether or not to invest in your business.

So, ensure that the key financial reports provide a transparent view of your daycare’s financial health and viability.

Here’s a list of several financial statements and analyzes you should incorporate into your projections:

Cash flow statement

A cash flow statement helps you track the cash flow in and out of your business over a specific timeframe, generally monthly, quarterly, or annually.

It provides a detailed answer of how much cash your daycare facility brings in, pays out, and ends with the cash balance. Typically, it’s an illustration of how well your daycare is generating cash.

You may take into account the cash flows related to tuition fees, payroll, supplier payments, equipment, property improvements, loan repayments, borrowing, or equity investments.

Be realistic about your financial assumptions and measure the daycare’s liquidity, capability to meet financial obligations, and sufficiency of cash flow to fund future investments and expense outlays.

Balance sheet

A balance sheet provides a quick overview of your business’s financial position at a specific time.

It clearly demonstrates what you own, what you owe to vendors or other debtors, and what’s left over for you. After all, it has three main elements:

• Assets: Cash,  property, equipment, and accounts receivable
• Liabilities: Debts, loan repayments, and accounts payable
• Equity: Owners’ equity & other investments, stock proceeds, and retained earnings

Ideally, it is formulated as, assets = liabilities + equity

By looking at your balance sheet, anyone can get the exact idea of how financially stable your business is, how much cash you hold, and where your money is tied up.

Income statement

The income statement is also known as a profit and loss statement(P&L), explaining how your business made a profit or incurred a loss over a specific period, typically monthly, quarterly, or annually.

Depending on the structure and type of your business, consider adding these factors—revenue or sales, operating expenses, and gross margin to your profit and loss statement.

You may calculate the gross margin by subtracting the cost of sales or COGS from revenue. It enables you to determine your business’s efficiency in utilizing resources.

Further, the P&L statement should also include operating income, which is equivalent to EBITDA. And the net income is the ultimate goal of any business, found at the end by deducting the operational expenses from EBITDA.

Overall, the income statement helps you gauge your business’s profitability, financial performance, and feasibility in the long run.

Break-even Analysis

The break-even analysis allows you to determine the point at which your daycare business’s total revenue matches its total expenses, causing no profit or loss.

It helps you evaluate the level of sales or revenue needed for your daycare business to cover its fixed and variable costs.

This analysis provides valuable insights into your financial sustainability and helps you set sales targets, pricing strategies, and cost-control criteria.

7. Test Assumptions and Scenario Analysis

As your entire plan is prepared based on assumptions, you’ll need to regularly review and stress-test your financial projections to check their relevance with market realities and business performance.

In this stage, you may consider various “what-if” situations and think about scenarios where things go well or don’t.

For instance, you’ll need to consider the changes in enrollment, tuition rates, or operating costs to measure the stability of your daycare financial plan.

By performing test assumptions and sensitivity analysis, you can adjust your strategies accordingly to mitigate risks, optimize returns, and make well-informed business decisions.

8. Monitor and Update Your Plan

Once your plan is ready, continuously evaluate and monitor your daycare facility’s financial performance closely against the financial projections and key performance indicators(KPIs).

You can compare the actual financial results with the projected income streams, expenses, and ROI to take note of any variances or deviations from the plan.

If some factors are remarkably different from projections, recognize the causes behind them. This will help you understand which areas need improvement and which works as anticipated.

Also, review and update your strategies accordingly to optimize financial results and achieve long-term success.

Now that you know how to create a solid daycare financial plan, it’s time to explore an example for easy understanding.

Daycare Financial Plan Example

Writing a daycare financial plan from scratch can be overwhelming, right? But not to worry; we’re here to help you with a realistic financial plan example prepared using Upmetrics.

It includes all the key elements of the daycare’s financial projection, including the income statement, balance sheet, cash flow statement, and break-even point. This will streamline the entire planning process and help you get started.

Start Preparing Your Daycare Financial Plan

And that’s a wrap—we’ve discussed all the fundamental aspects of financial planning.

But if you still feel swamped by the thought of drafting a financial plan, don’t worry; Upmetrics can be a great companion here!

With customizable templates, AI Assistance, and financial forecasting software, Upmetrics will make your process a breeze. You’ll have to simply input the financial assumptions and let it figure out the rest.

So what are you waiting for? Start planning now!