Running a successful childcare business is no easy feat. With ever-changing economic conditions, it can be difficult to ensure the long-term success of your business. That said, there are certain measures that business owners can take to ensure that their childcare business can thrive whatever the economic climate. During the Covid-19 Pandemic, over the course of an 18-month period more than 17,000 childcare businesses closed: creating a huge challenge for both families and providers. There are multiple reasons for these closures, from staffing, to managing the business properly, to lower employee compensation to failing to keep proper books & records. However, I want to pinpoint a few factors that can prevent the closure of many Childcare Businesses.
Five ways that will guarantee that your Childcare Business can prosper in ANY economy:
1. FOCUS ON TAX PLANNING – One of the most important steps to ensure that your childcare business thrives is to focus on tax planning rather than tax preparation. A tax plan will give you a roadmap to success, and it should include a budget, a tax deduction strategy plan, and a forecast of potential income and expenses. This will help you to make informed decisions and set realistic goals to work towards. As a childcare business owner, you must make sure that you have a clear understanding of the tax implications of your business. Tax planning is essential when running a childcare business, as this allows you to make sure that you are taking full advantage of the available deductions and credits. Tax planning can help you to reduce the amount of taxes that you may owe and maximize the profitability of your business. We find that roughly 75% of Childcare businesses that we speak with have chosen the wrong business entity and are paying far too much in tax; the dreaded Self-Employment tax is a killer. We had a client who was a single member LLC and was paying about $15,000 in Self-Employment Tax because she filed her tax return as a sole proprietor. We immediately engaged her and began tax planning, the first step in the plan was to change her entity structure from sole proprietor to an Scorp, and that strategy alone saved her more than $20,000.
2. WORK ON THE BUSINESS not IN THE BUSINESS – Providers have one job, and that’s to focus on providing a safe, nurturing exceptional educational experience for the kids in their care. However, as a business owner your job is to increase revenues, promote your business and manage the operation of the business; it’s not to be a jack of all trade. Too many Childcare Owners play the role of the CEO, the janitor, the parent therapist, the child therapist, and far too often even a debt collector. Every minute you spend on tasks which are not producing or increasing income is a minute wasted. If you’re spending time doing your bookkeeping, taxes and/or payroll you’re losing money. We have a client who used to spend about 20hrs a week on financial tasks (bookkeeping, payroll, etc). When I explained that she’s spending an equivalent of 43 days out of the year performing accounting data and procedures she was in shock. What really shook her was when I asked her how much revenue could you have increase if she just focused on building the business? Or how would you spend those 43 days with your family? That 2-5hrs a week you’re spending on tasks which a professional should handle are hours that you could be spending working ON your business and increasing your revenue.
3. STAYING INFORMED ON MARKET TRENDS – Staying up to date on the latest trends in childcare, such as innovative services and new products, will help you to remain competitive in the marketplace. You should also attend seminars and conferences to learn more about the industry, network with fellow childcare owners who are making it happen and to get advice from experts. We met a childcare owner during a conference and through our process we saved her over $25,000 in taxes and I immediately suggested that she hire two more staff members and begin to work ON the business and generate more income. Unlike other business owners, this client didn’t take the tax savings and go on vacation or buy a new car, instead she listened to my suggestion to use these savings to hire more staff which in turn allowed her the time and flexibility to grow her business. Not only did she grow the business, now she was able to spend more time working ON the business NOT in the business. Now she was able to live life without anxiety and she went from an in-home family group to a center within a year.
4. AVOID PAYING TAXES USING OUTSIDE-THE-BOX STRATEGIES – Have you ever asked yourself, how is it that so many people in the childcare space pay less taxes? How is it that these huge corporations pay zero in taxes? It’s simple and easy, the IRS encourages us to avoid paying taxes. Yes, I said it AVOID paying taxes, EVADING taxes is illegal; but it is up to you to either learn and understand the complicated tax code or hire a professional to help you to avoid paying taxes. Investigating and finding tax breaks and incentives that apply to your childcare business can be a daunting task when you’re searching for ways to save money on taxes, such as deducting business expenses, investing in childcare equipment and supplies, and taking advantage of tax credits. Like so many of you, my client Doris, because of the pandemic, received large amounts of grant monies that increased her income and put her in a new tax bracket which caused her to lose her govt sponsored medical coverage. She was frantic about this issue and like many of you she posted her feelings about the second grant 2.0 on social media; I read some of those posts and many providers were talking bad about applying for more monies. I was amazed by the number of providers who refused to apply for more money, who does that, I read those posts and I was disappointed. I was Disappointed because as a business owner our business thrives on greater income, I’m sure if I offered everyone who reads this $100K each, everyone would take it. That’s the whole point of being in business, to drive revenue, but many providers were looking at this increase in income as a curse rather than a blessing. And the reason you view great income as a curse is because you don’t know the tax code. So, here’s what I did with Doris to lower her tax liability with the second round of grant monies, I told her go hire your spouse and place him on payroll, as an employee benefit Doris will pay for his health insurance premium of $20,000 which is 100% tax deductible, and he will turn around and get family health care for the family. Everybody wins here, Doris gets a to lower her taxable income with a $20K deduction and the entire family now has medical coverage.
5. Finally, use technology to your advantage and open your creative mind to drive income. Implementing technology in your childcare business can help you streamline operations, increase efficiency, and save you money. Invest in the right technology, such as software to manage customer accounts and billing, and ensure that you are using it properly. Consider a software which will help you in seeking out additional sources of income. Consider diversifying your income streams by offering additional services or products related to your childcare business. This could include offering classes, tutoring, or consulting services to your customers.
You need someone to help you avoid the pitfalls that are affecting the industry, someone to help you squeeze every dollar from the business, someone who can go to bat for you and bring you peace of mind. Our mission is to impact the financial health of over 850,000 childcare businesses nationwide by strategically showing them how taxes, bookkeeping and payroll can be used as a TOOL to grow their business and thrive in any economy. One of the most common questions I get is: David can you HELP my childcare business to save money on taxes, straighten out our bookkeeping and run our payroll? AND the answer is YES
I work every day with family groups, centers, and head start with multiple locations, making anywhere between $50K to several million.
The next step for you is to schedule our Peace of Mind Call by clicking on the following link: www.daycareaccountingpro.com and scheduling an appointment at your convenience. It’s a 20-minute call to review what you’re paying in taxes and what adjustments and/or tax strategies you can implement immediately, it will also allow us the opportunity to get to know each other, what are your goals and where you want to be in 12-months from now, this call will give us an idea if we’re a good fit to work together. People have paid up to $1,000 for this call, but don’t worry, for you guys we’re making this special offer for FREE. What this offer means for you, is that after our call you will be in a position of strength to determine what is the best course of action to move forward with regards to your tax situation, what tax strategies can work for you, you will understand what you need to do to fix your bookkeeping to remain audit proof and how to run your payroll.
Whether you’re a solopreneur, an in-home group, a center or you have multiple locations, whether your business is making $50K or several millions, this offer will help you achieve your goals. “Childcare owners suffer from an inherent number of challenges; accounting should NOT be one”. ~ David Encarnacion