Financial planning
When running a business it is essential to keep track of the money coming in and out of your accounts. The most effective way to achieve this is by setting a budget and monitoring how closely you are able to stick to it.
A budget
A budget is a statement of what your business expects to spend and receive and will detail every item of income and expenditure that occurs. The format should allow for cumulative figures to give a view of the balance at the end of each month and for any point in the year.
Setting your budget
If you are starting a new childcare business your initial budget will have to be based on informed estimates. If you are setting a budget for an existing business you will need to use the actual figures from the previous years trading, allowing for inflationary increases.
Expenditure
In this part of your budget you will need to forecast what you expect to spend for the next year. The Business Development Team has developed a cashflow forecast template and an example which are suitable for all types of childcare. All expenditure should be included under headings as in the example.
The biggest cost for most childcare businesses is salaries and it is important to remember to include on-costs such as employers contributions to PAYE, NI and pensions. Some costs will be fixed and are therefore likely to be more accurate, while others, like expenditure on food, will vary according to how many children you have.
All businesses should allocate an amount for contingency, to allow for unexpected problems and to ensure that there is adequate money to cover your redundancy commitment and any tax due. Many businesses hold an account that earns higher interest for this money so that it is kept in reserve away from the current account. Capital expenditure will need to be recorded separately.
Income
When you have established your total predicted expenditure you need to ascertain what your projected income might be. A good starting point for this is to work backwards using your total expenditure to work out how many children you will cater for and therefore how much you need to charge in order to meet your costs. Any estimates used will need to be as accurate as possible and this is where your Market Research will help.
This research will give you information about your area and the fees and services that your competitors offer. The most important factor is that the fees that you charge cover your costs.
When setting out your predicted income it is useful to separate the different sources. For example: fees and grants; and for the voluntary sector: fund raising and donations. For a new business it is important to produce a number of different forecasts based on different levels of occupancy so that you can see exactly how this will affect your business.
Breakeven occupancy
When you have decided on an hourly fee you can work out how many children you will need to attend each day to meet your costs. You will need to have contingency plans in place in case your business does not progress as expected. For example if it takes longer than predicted to fill your places. Having a current Business Plan in place will help you to identify what contingency might be needed.
Numbers you need to know
There are some basic sums that you will need to do in order to monitor the progress of your business.
Monitoring
Once your budget is set you will need to monitor your income and expenditure regularly. In this way you can compare what was forecast with what has actually happened. By reacting promptly to any variance and establishing why and how to deal with changes you give yourself a better opportunity to address financial difficulties before they get out of hand.
It is advisable to monitor your financial position at least once a month. A cashflow spreadsheet will also allow you to ascertain the impact of possible changes, like a salary increase, so that you can alter fees accordingly. You can analyse the financial impact of any developments in this way.
Best value
Each year it is advisable to look at any contracts you have for services or goods to reassess whether they still provide the best value. These may include banking services, insurance, waste collection and any other product or service that you pay for. It may be that you find a supplier who offers a more competitive rate or you are able to renegotiate the amount you pay your current supplier. It is always worth asking!
New help for employers from HMRC
Having employees isn’t just about paying them. It’s also about understanding responsibilities such as statutory payments and sending regular reports and payments to HMRC. Their new online e-learning guidance ‘Becoming an Employer’ provides all an employer needs to know and it makes a handy guide too.
HMRC also has a new series of five short videos to help and support new employers. They’re available now on HMRC’s YouTube channel:
Payroll software and sending reports to HMRC
How to send your final PAYE submission
Contact us
Our childcare business advisers are happy to meet with you or you can contact them for advice by phone on 0116 305 8048 / 8039 or email childcare@leics.gov.uk.