6 Ways to Estimate Your Cash Flow During Fall and Winter

Cash flow refers to the movement of money in and out of your daycare business during a specific period. Managing your cash flow is critical for a daycare business’s success, especially after the long holidays and plans for expansion or market share growth. Cash flow is king for all businesses. It keeps your daycare business healthy and enables it to accelerate during busy months and withstand lean ones. There are different ways to estimate and measure cash flow. Each has its merits and weaknesses, depending on your operational goals.

Projecting Cash Flow

It helps to project your daycare’s cash flow accurately before you can properly manage it. Cash flow projection or estimation means knowing how much money will come into your business and how much you have to pay in expenses. Of course, it’s nearly impossible to estimate your cash flow with certainty. Unexpected expenses almost always arise, kids will come and go, government grants may change, and parents will pay late. However, if you are organized and diligent, you can get a good idea of how much cash you need for a specific period and know how much money is in your accounts. Below are six ways of estimating your day care’s cash flow.

1. Make a Cash Flow Budget

Developing a cash flow budget requires you to estimate your daycare’s income and the expenses it will payout. Base your estimates on past performance to make them verifiable and help determine your financial projections. Furthermore, base any new program assumptions on carefully-conducted market research of other similar daycare businesses. Assumptions to consider include:

• The vacancy rate
• The number of kids served
• The fees you charge
• The number of hours and days the business is open

Developing your budget requires considerable time and planning. Below are some of the activities involved:

• Establish the budget period – annually, monthly, quarterly, or biannually.
• Estimate the number of kids you will serve based on your licensing standards, space available, the number of kids already enrolled, and the number of staff you have (if any).
• Estimate anticipated revenue. It could come from parent fees, public subsidies, food programs, sponsors, etc.
• Estimate anticipated expenditures. Make sure to include:
  • Fixed expenses like rent, insurance, utilities, mortgage, and telephone
  • Salary expenses if applicable
  • Program or funder requirements, for example, associated costs of a grant program like obtaining accreditation
  • Everything else such as food, equipment, supplies, advertising, staff development, and liability insurance

To get your ending cash, you must add your starting cash (the amount you have in your daycare accounts) and anticipated revenue (money coming into the business). If the number is positive, then your daycare has a positive cash flow for fall and winter.

2. Free Cash Flow

Free cash flow is a standard method of estimating and measuring cash flow. The FCF metric tracks the cash you have leftover after making capital expenditures like mortgage and equipment payments. To determine your FCF number, you must examine both your capital expenditure and operating cash flow. Free cash flow is essential because it’s the money available to build your daycare business, expand your product offerings, and carry out other activities that increase your business’s long-term value.

3. Cash Flow from Financing Activities

Cash flow from financing activities shows your business’ financial condition by showing how you raise your capital and repay investors. These activities include taking on new loans or paying investors, if any. Therefore, if you consistently take on new debt for your temporary cash shortages, it is an indicator of financial problems down the road. Cash from financing activities tells you what percentage of your money is from financing instead of operations revenue. It is also an indicator of your expansion readiness.

4. Cash Flow from Operations

It is one of the best indicators of your daycare business’s overall financial condition. The term operation refers to your core business activities. In your case, it’s providing care and supervision to the children under your care. Cash flow from operations shows how much money goes out and comes in from your core business functions. It’s the cash flow available before you finance anything. If it’s thin, you must consider outside financing to pay your bills.

5. Levered Cash Flow

Levered cash flow (LCF) refers to the free cash flow you have remaining after taking care of your debt obligations. It tells you how much money you have available for distribution and investment. To determine your LCF, you must first figure out your un-levered cash flow and subtract any outstanding remittances, including interest payments. Levered cash flow is a suitable indicator of your business credit record, as well as your ability to repay debts and manage business funds.

6. Use of a Spreadsheet or Software

In most cases, the best way to estimate your cash flow and keep track of it is to use a spreadsheet or software. Today the market contains excellent software to help childcare and daycare businesses manage their budgets and daily operations. One example is Prime Childcare, a cloud-based childcare management software, plus a supporting mobile childcare app. Prime Childcare can help you simplify your finances, automate your back-office processes, optimize your communications, and streamline your compliance reporting. Such software leaves you enough time to take care of the kids and communicate with parents and prospects.

Over to You

While it may take some time and experience, if you properly manage your cash flow and keep good records, you can make accurate cash flow projections and estimates. You can also anticipate when things get tight. One best practice to help your cash flow budgeting is to lower your cash in (anticipated revenue) projections and raise your cash out (expenses) estimates. At Prime Childcare software, we pride ourselves on technical innovation and providing comprehensive, easy-to-use technology supported by humans. We remain dedicated to empowering childcare centers to manage their routine functions so that proprietors can spend time nourishing relationships and doing other core business activities. Contact us today to get started.