Module 3: Best Business Practices for Child Care

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Download the PDF version of Module 3.

Like most industries, there are particular legal, regulatory, and tax implications to consider when operating a child care business. Best business practices for child care must consider the intersection of regulatory policies, operational norms, and quality indicators along with these other standard business practices. The strength of Wisconsin’s rules and regulations along with the quality measures laid out within the YoungStar program provide a solid foundation for best business practices for child care programs. This module outlines additional practices and supports which, when implemented, can provide increased ease of business management, employee retention, and improved outcomes for children.

Bookkeeping and Finances

Regulatory policies outlined in “Moving Forward: Rules and Regulations for Opening or Expanding a Child Care Site” set rules for the necessary square footage, maximum group sizes, and teacher-to-child ratio based on the age of the child served. These rules, grounded in safety and risk management, have financial implications.

The Iron Triangle model developed by Louise Stoney of Opportunities Exchange is a set of principles designed to ensure successful financial management of child care businesses. The Iron Triangle represents a set of operational metrics proven to strengthen financial stability.

  • Enrollment trajectories: Smart budgeting for enrollment considers staffing capacity (number of children necessary to have enrolled to cover costs of number of staff required to meet ratio) and enrollment patterns (with a norm of 85% licensed capacity). Solely budgeting on licensed capacity may leave your budget in the red.
  • Full fee collection: Child care businesses often carry bad debt. To ensure full fee collection, enforce payment contracts and encourage online and auto deduction of payments.
  • Revenues to cover your per-child costs: Child care programs typically have different tuition rates based on the age of the child. The rates set for each age group must cover per-child expenses.
    • Per-child costs include staffing and supply costs for a given age group/classroom as well as a portion of all shared expenses such as utilities, rent, snow removal, and food costs.
    • An assumption of average enrollment rates (85%) should be used to calculate revenue estimates.

Child care program policies, including registration fees, sibling discounts, late fees, and others, may carry financial implications which should be accounted for within the budget. Signed contracts with each family should be built into a program’s practices and should be signed by the person(s) responsible for the payment incurred. Contracts need to have five parts to be legally binding: the names of the parties entering the agreement, the description of services provided, the amount and expectations around payment, termination clause, and signatures/dates of the parties involved.

Legal and Tax Considerations

Legal and tax implications for child care providers can be complex, and providers are encouraged to work with professionals in these fields familiar with child care businesses. The requirements for licensing to operate a child care program in Wisconsin include creation and implementation of policies with legal implications. These include but are not limited to:

  • Employment terminations
  • Contract violations
  • Sexual or child abuse claims
  • Injuries on property

Insurance coverage is also required for child care providers, with the premium based on the number of children on the state License or Certificate. In addition to liability insurance, providers renting space may want to consider renter’s insurance. All providers may need to add an additional policy for professional materials/equipment.

One recommended resource for legal and tax implications for child care providers is Tom Copeland, whose blog provides guidance on a host of topics and questions. While focused on family child care providers, many resources provided by Copeland are also applicable to group child care providers. Resources include:

Additional Supports and Resources