Preparing a cash flow or operating budget isn’t s common practice among family childcare providers.


While providers may have an idea of their annual income or revenue, there is less of a grasp on the level of expenditures. Many family child care providers are unable to state the profitability of their businesses and the degree of profitability. This is accompanied by inaccurate record-keeping that may mean higher taxes for the provider resulting from missed opportunities to report all eligible deductions.

Implementing this practice can help a provider ensure that there is sufficient cash to meet obligations, control expenses, see progress in the business, plan the business’ future, and set and meet financial goals.

Learn more about Record Keeping & Taxes.

Note: the presenter makes the assumption that the viewer is an employee and in the example uses paycheck to indicate income/revenue. Your income/revenue would come from payments collected from parents or subsidy programs, food program reimbursements, and/or grants.

An operating budget provides a picture of how much income or revenue and expenses a business plan has over a specific period. Ideally, a provider would prepare an estimated budget for each month, then prepare a budget report for each month with actual figures.

A cash budget fleshes out an operating budget by showing how money flows—amounts and dates of cash receipts and amounts and dates of cash outlays. A provider can prepare estimated and actual versions, which will help determine whether there are sufficient funds available to meet financial obligations. Maybe a parent unexpectedly moved or maybe the provider unexpectedly had to replace furniture -if so, the provider may respond by delaying and/or reducing some planned purchases or by using financings such as loans and credit cards to cover budget items.

Factors to consider when developing a budget include hours of operation, children in care part-time or full-time, the ages of the children, salary (assistants/substitutes), etc.

The practice may help ensure the provider has sufficient cash to meet obligations, control expenses, see progress, plan for the business’ future, and set and meet financial goals.

This approach will also encourage providers to identify priorities and consider areas where he/she is willing to or not willing to compromise in order to balance the budget.

Source: Indiana Association for Child Care Resource & Referral (IACCRR) in cooperation with the Indiana Family and Social Services Administration (FSSA) et al. (2010). The ABC’s of a Child Care Business. Retrieved Nov. 21, 2015 from

Cash flow is the movement of money in and out of a business. For small businesses, cash is necessary. A childcare provider needs to have cash in order to start, operate, and expand operations; but many small business owners often have trouble managing and maintaining cash. Inaccurate cash flow analysis – or lack of available cash – can affect the everyday operations of a business and the owner’s eligibility to receive a loan.

The process includes:

  • Money coming into the business
  • Money owed from the business

It’s crucial to balance these two figures and maintain a reasonable balance of cash at all times. An effective cash flow system will help you -the provider- manage funds to cover operational costs and bills, and foresee potential problems in the future.

A cash flow statement serves an important and independent purpose – it accounts for non-cash items and expenses to adjust profit figures. Cash flow analysis statements display not only changes over time but also available net cash.

Cash flow analysis statements are generally separated into three parts:

  • Operating activities: This section evaluates net income and losses of a business. By assessing sales and business expenditures, all income from non-cash items is adjusted to incorporate inflows and outflows of cash transactions to determine a net figure.
  • Investment activities: This section reports inflows and outflows from purchases and sales of long-term business investments such as property, assets, equipment, and securities. For example – if a bakery business purchases an additional piece of kitchen equipment, this would be considered an investment and accounted for as an outflow of cash. If a business sold equipment no longer needed, this would be considered an inflow of cash.
  • Financing activities: This section accounts for cash flow trends of all money that are related to financing a business. For example: if you received a loan for your small business, the loan itself would be considered an inflow of cash. Loan payments would be considered an outflow of cash, and both would be recorded in this part of the cash flow analysis statement.

Making cash flow projections and computing cash flow statements can be confusing if you have never managed these types of finances before. Ask your business accountant or contact a business expert from your local SCORE office for help.

U.S. Small Business Administration. (n.d.). Developing a Cash Flow Analysis. Retrieved from

Every successful business needs a budget, and here are some tips on how to make one that works for you.

Drafting a budget is a key way to help you turn your dreams for business success into reality. Using this vital tool, you can track cash on hand, business expenses, and how much revenue you need to keep your business growing or at least afloat. By committing these numbers to paper, your chances of succeeding with your business are helped by anticipating future needs, spending, profits and cash flow. It can also help you identify problems before they grow so that you can make needed changes.

“It’s like a roadmap for your company,” says Victor Butcher, of Butcher Financial Services in Memphis, Tenn., a former president of the Tennessee Society of Certified Public Accountants’ Memphis Chapter who advises small businesses. “You need the roadmap to understand where you’re going with your business.”

Conversely, if you lack the discipline to sit down and assemble a business budget, you may not have insight on how your business performs from year to yea; whether there are cuts you can make to improve performance and whether you have the needed funds to purchase new equipment be it computers, trucks, machinery, or a new factory. “It’s like being in a car without a map or GPS system,” Butcher says. “You hope you’re going in the right direction, but you don’t know.”

The following pages will detail why your business needs a budget, what components you should include in it, how to begin drafting one, and how to use it to better your business performance.

Why Your Business Needs a Budget

As a childcare provider, you’ll need a budget to help you assess how much money you have, how much you need to spend, and how much you need to bring in to meet business goals. But there are other reasons, too. Bankers and other financiers may want to see a budget when you ask for a loan.

Budgets can also help minimize risk to your business. A budget should be created before you sign a new lease or invest in new machinery or equipment. It’s better to discover that you can’t afford new office space before you commit to spending a certain amount of money every month.

According to the U.S. Small Business Administration, a budget can be used to indicate some of the following:

  • The funds needed for labor and/or materials.
  • For a new business, total start-up costs.
  • Your costs of operations.
  • The revenues necessary to support the business.
  • A realistic estimate of expected profits.

You can use this information to adjust your plans or expectations going forward. A 12-month budget can be updated with actual expenditures and revenues each month so that you know you’re on target. If you’re missing the targets set out in your budget, you can use the budget to troubleshoot by identifying where you can reduce expenses such as labor or the purchase of new computers, increase sales through aggressive marketing, or lower profit expectations.

Components of a Budget

A budget should include revenues, costs, and most importantly profits or cash flow so that you can assess whether you have the funding needed for capital improvements or capital expenses. A budget should be tabulated annually. Most annual budgets are also divided into 12 months, with blank columns next to estimates that are filled in with actual results as the year progresses. You may want to consult an accountant in preparing a budget, but it also may be something you can do yourself with small business financial software and/or some of the free budget worksheets and templates available online (see Recommended Resources below.)

Although you may want to consult an accountant when preparing a budget, you can also do one yourself with help from small business financial software and/or free budget worksheets and templates available online (see Recommended Resources below.)

Basic Budgeting Components as Defined by the Small Business Administration:

Sales and other revenues – These figures are a budget’s “cornerstone.” Try to make these estimates as accurate as possible, but err on the side of being conservative if you have to.

Total costs and expenses once sales estimates are completed, you can develop with figures showing the cost to your business of earning those revenues. This can be tricky because sometimes these figures will vary as a result of inflation, price increases, and other factors. Costs can be divided into categories: fixed, variable, and semi-variable.

  • Fixed costs are expenses that remain the same, whether or not sales rise or fall. Some examples include rent, leased furniture, and insurance.
  • Variable costs correlate with sales volumes. These include the cost of raw materials needed to make products, inventory, and freights.
  • Semi-variable costs are fixed costs that can be variable when influenced by the volume of business. These can include salaries, telecommunications, and advertising.

Profits – Let’s face it: you’re in business to make a profit on your investment and work. You estimate this figure by subtracting costs from revenues. The SBA advises, to check with trade associations, accountants, or bankers to make sure that you’re getting an appropriate profit from your business. Once you have profit estimates, you can begin to assess whether you can purchase new equipment, move to a bigger location, add staff, or give your employees bonuses or raises. You can also troubleshoot your projected costs and see where you can cut if your profit projections aren’t meeting the standard.

The budget should operate according to basic mathematical equations — either “sales = total cost + profit” or “sales – total cost = profit”. To learn how to draft a business budget click here.

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