Bookkeeping for daycare centers is essential for overall financial health. A daycare can incur a lot of small expenses on a daily basis. You must track all of these to make sure that you stay profitable. You need to compare your expenses to your income, of course, to determine if you’re making a profit.
Understanding Bookkeeping for Daycare Basics
Here are the key things to understand about doing proper bookkeeping for daycare businesses.
Income
- Separate your business finances for your personal finances with dedicated bank accounts and credit cards.
- Create clear invoices for parents describing the services you provided, the rates for each, and the payment terms.
- Track all your income sources, like tuition, other fees, and any other revenue.
- Set up a bookkeeping system for tracking payments from different sources, like cash versus electronic transfers.
Expenses
- Categorize your regular expenses.
- Keep all your receipts and invoices.
- Use accounting software to record expenses.
- Keep detailed records of employee and freelancer hours so you can calculate wages accurately, including overtime and deductions.
- Keep detailed records of employee and freelancer payments and understand tax regulations so you can handle withholding and payroll taxes correctly. (Alternatively, hire a professional to handle this.)
Taxes
- Gather all your financial records.
- Understand all the relevant tax deductions and credits that apply to childcare businesses. (Alternatively, consult with a tax professional for guidance.)
Why Bookkeeping is Essential for Daycare Centers
Business Health
Proper bookkeeping is what allows you to monitor your daycare’s income and expenses. This is the only way you can correctly assess its financial health, and potntial risks along with jhow to mitigate them.
With accurate financial data, you can also develop realistic budgets and forecasts, and manage cash flow. This is how you can plan to stay competitive and profitable without compromising quality.
The same data gives you an idea of your operational efficiency and where you can improve your daycare’s performance. If you want to expand your business or purchase new equipment, you’ll likewise need to review the numbers.
Compliance and Legal Obligations
You must have detailed financial records to manage inventory and payroll, and make accurate tax filings.
Daycare centers also need to follow specific bookkeeping regulations for licensing purposes because they serve children. Proper record-keeping makes it easier to pass inspections and avoid audits.
Setting Up Your Bookkeeping System
Choosing the Right Bookkeeping Method
Cash basis accounting is an adequate method for bookkeeping for daycares that are very small with limited transactions. It’s simpler to understand, implement, and manage.
You get a clear picture of cash flow, but it does not accurately reflect your business’s financial health. If you’re not careful, this can lead to inaccurate tax reporting.
We recommend accrual basis accounting because it provides a more accurate representation of financial performance. You need this to make informed decisions, manage cash flow effectively, and comply with tax regulations.
Note that the government requIres accrual accounting for most businesses over a certain size. You also need it if you want to get loans or investments at some point.
Even if accrual accounting vs cash accounting is more complex and requires more detailed record-keeping, it’s generally the best option.
Selecting Appropriate Software
Whatever bookkeeping and financial reporting software you choose, make sure it has the following core features:
- Tracks registrations, waitlist deposits, and special placements.
- Tracks staff hours, including parent-teacher interactions outside of office hours.
- Generates invoices, tracks payments, and manages bills payment.
- Tracks supplies from meals to single use alcohol swabs.
- Has robust security and data privacy (GDPR, CCPA) measures to protect sensitive child and family information.
- Offers a reasonable balance between cost and value.
- Complies with industry standards.
You can also look into some additional useful functionalities, like:
- A mobile app for on-the-go access.
- Compatibility with other systems like office management software.
- Is easy to use and has accessible documentation and support.
Creating a Chart of Accounts
Importance of a Well-Organized Chart of Accounts
As your directory of all the business’s financial accounts, your chart of accounts ensures that all your transactions are correctly classified. This means accurate financial statements.
A properly organized chart of accounts streamlines bookkeeping so you can get trustworthy insights faster. It also facilitates audits and inspections.
Common Account Categories for Daycare Businesses
The following are some general categories that you can subdivide further based on your daycare’s specific needs.
Income accounts typically include tuition and fees, late fees, and miscellaneous income like snack sales and supply fees.
Expense accounts are more varied:
- Employee salaries, wages, payroll taxes, and benefits, and freelancer rates and payments.
- Daycare center rent or mortgage, utilities, property taxes, building insurance and upkeep, and equipment maintenance and repairs.
- Cleaning supplies, toys, crafts, and office supplies.
- Food for enrollees and hires included in tuition and work agreements.
- Costs for marketing, advertising, and promotional materials.
- Professional accounting, legal, and consulting services.
- Business vehicle fuel, insurance, and maintenance and repairs.
- Licensing and permit fees.
- General business liability and property insurance, and workers’ compensation.
- Asset depreciation.
Asset accounts include the more common cash, accounts receivable, prepaid expenses, furniture and equipment, and vehicles.
Liability accounts are also the usual accounts payable, salaries payable, taxes payable, loans payable, equity accounts, owner’s capital, and retained earnings.
Managing Income and Expenses
Tracking Income
Recording Tuition Fees, Subsidies, and Grants
You need detailed invoices to present tuition fees for each family. Proper bookkeeping for daycare centers also entails maintaining a system to record and track payments and outstanding balances. Plus, a system to follow up on late payments.
Subsidies need separate accounts to track subsidy income from different sources. Make sure you maintain detailed records of subsidy agreements, eligibility criteria, and payment schedules. Don’t forget to reconcile subsidy payments with invoices and attendance records.
We recommend using specialized software to track grant details, reporting requirements, and expenditures. We also think that a separate bank account for grant funds makes it easier to keep clear records. Maintain meticulous expense records related to the grant to comply with all terms.
Recording Expenses
Always separate fixed from variable expenses. Combine related expenses for better financial oversight. Consider as well how expense categories affect tax deductions.
Adjust your expense categories as needed to ensure they accurately reflect your business operations.
We recommend using accounting software to automate expense tracking and generate reports. It’s less error prone and the added organization streamlines verification, recording, and reconciling, too.
Keep both digital and physical copies of receipts and back up your records monthly.
Handling Pay Expenses
Payroll Management Steps
- Understand all applicable labor laws and tax regulations.
- Accurately track employee information.
- Choose a payroll system that meets your needs.
- Set up payroll schedules and a system to track employee and freelancer hours.
- Determine pay rates, calculate taxes using payroll software, and process other deductions.
- Issue accurate pay on time with detailed information on earnings and deductions.
- Establish expense reimbursement policies for eligible expenses.
- File tax returns correctly and on time.
- Maintain detailed records for audits.
Benefits and Taxes
Make sure you track all the costs associated with each benefit you pay out. Some are required, so stay updated on the regulations. Review the optional ones and make adjustments as needed.
Keep detailed information about employee and freelancer benefits and rights. Make sure that all your hires have access to it.
Examples of benefits for daycare workers include health insurance, paid time off, retirement plans, flexible scheduling, continuing education, and childcare discounts.
Frequently Asked Questions
What bookkeeping software is best for small daycare businesses?
Xero is also good for small businesses. It offers features like bank reconciliation, invoicing, and expense tracking.
FreshBooks is good for small businesses that need basic features like invoicing, expense tracking, time tracking, and payment processing.
QuickBooks is more widely used and has various plans for different business sizes. It offers more robust features for tracking income, expenses, and payroll.
Procare is a tool specifically for childcare centers. It offers a comprehensive suite of tools that includes accounting, billing, and attendance tracking.
How often should I update my bookkeeping records?
The general guidelines for updates are weekly or bi-weekly updates for small centers. Monthly updates make tracking for larger daycares easier. If your center gets big, we recommend daily updates to avoid errors and get a clear financial overview at all times.
How can I ensure my bookkeeping records are audit-proof?
Having detailed and complete records that are always neatly organized is the best way to avoid suspicion, and this, audits.
Make sure you have all the original and digital copies of all financial transactions and supporting documents.
Establish strong internal controls and make sure you comply with tax laws consistently. Conduct periodic reviews to identify potential issues, like fraud.
What should I look for when hiring a virtual bookkeeping assistant?
The essential qualifications for a virtual bookkeeping assistant are experience and integrity. They should also understand that protecting private data and sensitive financial information is crucial.
Make sure your candidate demonstrates a value for accuracy and attention to detail as well as strong communication skills. If they are familiar with the accounting software you use, that’s great.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
In Summary
You can ace bookkeeping for daycare centers by setting up and maintaining a good system. Your biggest challenge will be tracking the small expenses like cotton buds and tissues. But your system will be what allows you to stay on top of everything.
