How to create a financial forecast for a child minding firm?
Creating a financial forecast for your child minding firm, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your child minding firm is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a child minding firm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your child minding firm and ensure that it can be financially viable in the years to come.
A financial plan for a child minding firm enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date child minding firm forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your child minding firm's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a child minding firm financial forecast?
A child minding firm's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing child minding firm, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a child minding firm startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the child minding firm running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your child minding firm's financial forecast.
The sales forecast for a child minding firm
The sales forecast, also called topline projection, is normally where you will start when building your child minding firm financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing child minding firms), and consider the elements below:
- Seasonal demand: As a child minding firm, your business may experience fluctuations in demand based on the time of year. For example, during summer months when children are out of school, you may see an increase in demand for your services. On the other hand, during holiday seasons when families are traveling, your business may experience a decrease in demand.
- Child population in the area: The number of children in the area where your business is located can also impact your average price and number of transactions. If there is a high population of children in the area, you may be able to charge higher prices and attract more customers. However, if there is a low population of children, you may need to adjust your prices and marketing strategies accordingly.
- Competition: The presence of other child minding firms in your area can also affect your sales forecast. If there is a lot of competition, you may need to adjust your prices or offer unique services to differentiate yourself and attract customers. On the other hand, if there is little competition, you may be able to charge higher prices and still attract customers.
- Economic factors: Economic factors such as the state of the economy, inflation rates, and unemployment rates can also have an impact on your business. In times of economic downturn, families may be less likely to spend money on child care services, resulting in a decrease in demand. However, during periods of economic growth, families may have more disposable income to spend on child care, leading to an increase in demand.
- Regulations and legislation: Changes in regulations and legislation related to child care can also affect your business. For example, if there are changes in licensing requirements or child-to-staff ratios, you may need to adjust your pricing and staffing accordingly. Similarly, changes in laws related to government subsidies for child care can impact the number of transactions your business receives.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a child minding firm
The next step is to estimate the costs you’ll have to incur to operate your child minding firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your child minding firm's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and payroll taxes for your child minders and any administrative or support staff you may have.
- Accountancy Fees: You may need to hire an accountant to help with tax preparation, bookkeeping, or financial planning for your child minding firm.
- Insurance Costs: It is important to have liability insurance to protect your business in case of any accidents or incidents while caring for children.
- Software Licences: Depending on the type of software you use for scheduling, billing, or other administrative tasks, you may need to pay for licenses or subscriptions.
- Banking Fees: This includes charges for business bank accounts, credit card processing fees, and ATM fees for withdrawing cash.
- Rent or Lease: If you do not own the building where your child minding firm operates, you will need to pay rent or lease payments.
- Utilities: This includes electricity, water, and gas for your facilities.
- Office Supplies: You will need to purchase items such as paper, pens, and printer ink for your administrative tasks.
- Cleaning Services: You may choose to hire a cleaning service to maintain a clean and safe environment for the children in your care.
- Marketing and Advertising: To attract clients, you may need to invest in marketing and advertising efforts, such as creating a website or running social media ads.
- Training and Professional Development: It is important to continuously improve your skills and knowledge in child minding, so you may need to invest in training and professional development opportunities.
- Safety Equipment and Supplies: To ensure the safety of the children in your care, you may need to purchase safety equipment and supplies, such as first aid kits, fire extinguishers, and safety gates.
- Food and Snacks: If you provide meals or snacks for the children, you will need to budget for food and supplies.
- Transportation Costs: If you offer transportation services for the children, you will need to budget for fuel, maintenance, and insurance for your vehicles.
- Taxes and Licenses: You will need to pay taxes on your business income and may also need to obtain licenses or permits to operate your child minding firm.
This list is not exhaustive by any means, and will need to be tailored to your child minding firm's specific circumstances.
What investments are needed to start or grow a child minding firm?
Once you have an idea of how much sales you could achieve and what it will cost to run your child minding firm, it is time to look into the equipment required to launch or expand the activity.
For a child minding firm, capital expenditures and initial working capital items could include:
- Child-sized furniture and equipment: This may include tables, chairs, cots, cribs, high chairs, and other furniture and equipment specifically designed for young children. These items are necessary for providing a safe and comfortable environment for the children in your care.
- Outdoor play equipment: Children benefit greatly from outdoor play and physical activity. Consider investing in items such as swings, slides, sandboxes, and climbing structures to enhance the outdoor play experience for the children in your care.
- Safety and security measures: As a child minding firm, it is crucial to prioritize the safety and security of the children in your care. This may involve installing security cameras, childproofing the premises, and purchasing first aid kits and emergency supplies.
- Educational materials and supplies: As a child minding firm, you will need to provide age-appropriate educational materials and supplies to facilitate learning and development in the children. This may include books, art supplies, educational toys, and learning aids.
- Technology and communication tools: In this digital age, it is important to have the necessary technology and communication tools to efficiently run your child minding firm. This may include computers, printers, phones, and software for managing schedules, payments, and communication with parents.
Again, this list will need to be adjusted according to the specificities of your child minding firm.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your child minding firm
The next step in the creation of your financial forecast for your child minding firm is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a child minding firm?
Now let's have a look at the main output tables of your child minding firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your child minding firm is likely to be in the years to come.
For your child minding firm to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established child minding firms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your child minding firm's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your child minding firm. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The projected cash flow statement
A projected cash flow statement for a child minding firm is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your child minding firm's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the child minding firm is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your child minding firm's financial forecast?
Creating your child minding firm's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your child minding firm's projections
The modern and easiest way is to use an online financial forecasting tool such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our projection software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional child minding firm financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your child minding firm's financial forecast?
Creating an accurate and error-free child minding firm financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own child minding firm, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your child minding firm
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your child minding firm future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a child minding firm, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial forecast
- Financial forecast template for a business idea
- How to create a sales forecast for a business?
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