Childcare Business Plan Case Study

Risk is something that we all are exposed to in different areas of life. In particular, the probability of getting exposed to certain risks gets higher when starting a business without proper financial planning.

The number of articles providing advice on how to start a business, how challenging it is and that one has to have a particular mindset of not quitting and so on, is countless. But what most of those articles and other sources on startups are lacking is elaborating on the financial side of a startup.

The importance of accurate financial projections is not being emphasized enough. And the client was looking for someone that could offer professional advice in this regard. He was looking for someone that could design a financial model for a child care business plan

About the subject

Our client was the type of person who likes detailed planning and to have a very good understanding of the business he was planning to start. The city where he lives has seen in the last few years a tremendous growth of population, as a result of people migrating from other smaller cities and towns.

This city is the biggest one and has many more employment opportunities and higher quality education options. This flux of migration has created a demand for a certain business, in particular for child care center businesses. Our clients had noticed this trend on the market and therefore had decided to open a child daycare business.

Even though, he was very analytical and very good at observing the main trends in certain industries, when it came to financial modeling he was aware that he needed professional support. It was very important to him to find someone who could design a sample startup budget for the child care center.

The client was looking for a model that would provide child care center financial statements, and to have other important business section, such as the one on the child care business plan executive summary. Like everybody else, his first approach was to try and find different online sources that had material on this topic.

He found several sources that listed helpful factors to consider for this type of business, such as models of program schools, how should it look at the interior design of the classes/room and many more. But none of the sources offered a comprehensive approach or model on financial forecasting.

Challenges and Objectives

Thinking that a business idea could succeed by observing the actual trends in the market and also be doing some research for this trend and back it up with statistical data it is very important. But before taking the risk of going into business the client felt that he needed much more in-depth planning and that having a model that could offer a financial forecast for few years would help him greatly in making his final decision.

Having found himself in this situation the client started drafting a list of the main factors and indicators that he would like to generate from a child care plan template.

The main pressuring issue for the client was to understand if child care centers are profitable. Hence, in order to address his concerns he created a list of questions as follows:

1. How much would cost setting up a child care business
2. When would be reached the breakeven point
3. How much would be the running cost and how to track them
4. How many children could look after a teacher
5. Forecasting salaries and wages for the employees
6. How long would take to return the initial investment
7. Counting for seasonality summer vs the rest of the year

The situation is quite challenging to him. As the client was going to use his own and his wife`s savings to start this business, and they had two children that soon would have higher needs for financial support. He could not afford to play with the future of his children or his own and his wife`s retirement plan. It seemed very reasonable to limit the risk of having bad outcomes as a lack of proper financial management and forecasting.

Before proceeding further and taking an action the client was certain that the best course of action was to hire a professional that could build a financial model that gives a detailed overview of all business aspects in a detailed documented childcare business budget spreadsheet.

How Particular Business Plan/Financial Model (Product) Helped

The client was very clear on what he wanted from the consultant. He was looking for a financial model that would give answers to all his above-raised issues. Long and thorough discussions took place between the two parties, as to make sure to cover all the client’s concerns. As a result of the financial model developed for the client, a forecast of up to 60-months of main operating and financial indicators was available.

Cash flows with a simple set of assumptions, income statement, balance sheet. In other words, the model consists of several components that enabled the client to comprehend much better of critical operational and financial elements of a childcare business.

Some of the features of the financial and business model were:

• An estimate of the monthly growth projection by years
• Financial statements Summary
• Debt assumptions for up to three debts and one grant
• Revenue forecast by product groups and operating COGS by groups categories
• An estimate of the fixed, variable and development cost
• Calculate the business capital expenses
• Calculations of personnel salaries

Result

Having set clear objectives since the beginning and having had long and productive discussion between the client and the consultant did result in satisfactory collaboration. The model developed for the child care center had managed to address all the clients worries and also give him a sense of security as now he could see the calculated and visualized financial forecast for the next five years of his new business.

He was exited in particular for the following information:

• A glance of the Financial Statement Summary and therefore enabling a better understanding of the Income Statement, Cash Flow, and Balance Sheet
• Core financials, cash flow data, revenue breakdown, profitability forecasts, and cumulative cash flow
• Schedule of the Loan’s repayments taken for the additional investment
• Top revenue where the client could see how much income each product category generates
• Top expenses where it was displaced the four most significant expense categories and the rest of the costs as the “other.”
• An estimate of the company’s value based on the Discounted Cash Flow method
• Visualization and tracking the key financial figures and key performance indicators in the form of charts
• A comparison of performance indicators in the model and the industry

Supporting Visuals

Dashboard — that gives a snapshot of the business’s financial viability. It was mapped out from different sections:

• Currency, denominator & tax — where inputs for such metrics live
• Debt assumptions — that has the flexibility to input three types of debts and a grant
• Core inputs
• Core financial forecast for the next five years, starting from revenue and then slowly accounting for all the expenses and finally reaching the estimate of cash
• A breakdown of operating cash flow, investing cash flow and financing cash flow for the next five years
• Revenue breakdown by category of products for the next five years
• Profitability trend for the next five years in comparison with revenue, and EBITDA

Top Revenue & Expenses

Based on the business model, the top revenues for the child care business plan were forecasted to come from children aged 0–2, 27.2%, then followed by age group 2–3, and the the third group 3- to preschool. All those age groups were foreseen for the next five years to have a positive growth trend.

On the other hand, the main types of counting for the expenses were salary and wages, tax expenses, advertising, rent, and the rest of them live in the “other” category expenses. Tax expenses based on the estimates will see steady growth as that’s linked to the profit generated, and the rest of the cost was forecasted to be stable for the next five years.

Key Performance Indicators

The key performance indicators modeled on the business for child care were: gross margin, profit margin, wages as a percentage of revenues, average weekly revenue, and average weekly net profit. All the above indicators were of great importance to assess whether the business is performing or outperforimg or underperforming compared to industry standards.

Future Plans

The end result turned out very satisfactory for the client. Now he had available a financial business model that was very informative and helpful in guiding him in the decision making process. And all the features above were ready to her with no formulas writing, no formatting, no programming, no charting, and no expensive external consultants. The client had started thinking of opening more that in one location the childcare business as the model made gave him a very good and efficient planning tool.

Call to Action (CTA)

There are people who are gifted in certain areas and they do not n much support. But there are very few of them that fulfill that criteria. The rest are good at a certain area and do need support when trying to accomplish something that is more complicated and requires thorough analyzes.

The most successful projects/ideas are developed by getting advice from a professional of that field and by having detailed planning of all the relevant factors that do have an impact on the feasibility of that project/idea.