An important early step for starting any new business is to make your business plan. Starting a preschool is no different! What expenses do you need to take into consideration? How can you think about setting your pricing? What ages should you take? What hours should you operate? Here’s how to think through each of these decisions to form your preschool business plan.
Before you think through specific business decisions you’ll need to make, it’s important to understand what you’re striving for. Meet the iron triangle. For a preschool business to be financially stable, the iron triangle must be met:
Type of license: Most states have at least two options for in-home child care licenses. Often there’s a “small” license and a “large” license, with a large license allowing you to have more children. If you’re just getting started you’ll have to choose which type of license you want. There are usually different requirements for each. For example, in California, to obtain a large license for up to 14 children, your home must meet certain fire safety requirements like number of exits and you need to have previous experience working in a licensed child care program.
One thing to keep in mind is that just because you have a license for a certain number of children, does not mean that you need to fill all of those spots. If you qualify for a larger license, you can get it and still only serve 6-8 children if you so choose.
Regardless of what you choose to do, you’ll want to make sure you understand the details of your particular license. How many children can you have at one time? What ratio of staff to children are you required to maintain?
Hours of operation: Do you plan to run a full day program? Or a half-day program? Will you operate a more “normal” school day schedule and offer before and after care for an extra fee?
Families need all sorts of care options. Think about your immediate community when thinking about your hours of operation. If you have a lot of stay at home parents, a part-day program might be perfect. If you have a lot of dual-earning parents who commute a long distance to get to their workplaces, you might need to offer extended hours.
Keep in mind that what you decide on initially does not have to be set in stone. You can always change it later, if needed. You’ll know if you’re not offering a good match for what the families in your community need if you’re not getting much interest, or if families aren’t enrolling once they tour.
Schedules you’ll offer: Related to your hours of operation, you’ll need to think about what schedules you’ll make available. Will you allow parents to enroll part time? Or do you only want full time enrollments? If you have part time schedules available, what does that look like? Is it Monday, Wednesday, Friday? Or is it half days?
Keep in mind that you can charge a higher rate for part time spots because it can be very hard to fill the alternative spots, plus the added paperwork for you. That said, not everyone wants to offer part time care.
Ages you’ll enroll: Deciding who you’ll enroll will depend on your comfort and background. If you have a lot of experience caring for and educating a specific age group, that might be your starting point. Most in-home programs serve a variety of ages, so even if your experience is with preschoolers, you may want to consider branching out from that. If your goal is to fill up quickly, infant care might be your ideal starting place, because that is an age group that is in constant high demand.
The ages you enroll will also dictate what you can charge. Because of the lower ratios required for infant care, you can charge more for infants. Often programs have separate pricing for children under 2 and children over 2.
Meals or other things you’ll offer: Will you provide snacks or meals? Or will you ask parents to provide those every day? Will you hire a yoga teacher to come once a week? Will you provide diapers, or will parents provide diapers? These are all expenses you’ll need to account for in your tuition pricing. Remember that one part of the iron triangle is ensuring your pricing covers the actual cost of care per child. These expenses should be taken into account.
Your plan for hiring staff: You may not need to hire staff until your enrollments surpass a certain number. Determine what that number is for you– do you feel comfortable caring for three children alone, but not four? Decide at what point you’ll hire help, and how many hours you intend for them to work. Will you have a full time assistant? Or two part time assistants?
Decide on how many hours per week you will need to pay your staff, and then determine what you can afford to pay them. Researching on Indeed can be a great way to get a sense of pay scale for assistant teachers in your area. Keep in mind that paying a higher amount will likely yield more higher quality and more reliable candidates. If you’re priced too low you either won’t find anyone, or will have to deal with increased staff turnover.
Your vacation policy: You’ll want to think through your vacation policy, both for time you take off, and for time your families take off. Will parents need to pay while they’re on vacation? Or will you give them a discount? Will parents need to pay while you’re on vacation? Or will you give them a discount? There are pros and cons however you do it, but you’ll want to think this through and include your policy in your parent handbook so the expectations are set from the start. However you structure it, you deserve to get paid vacation, so if parents aren’t continuing to pay while you’re closed, you’ll want to make sure that gets added to your tuition calculations.
Pricing can be a bit of trial and error. Generally, it can be a good idea to price yourself a bit lower when you’re just getting started. Then, when you’re full, you can gradually increase your prices.
To determine your starting point, add up all of your anticipated monthly expenses. You’ll need to price yourself to make sure you cover those expenses, and also pay yourself. Keep in mind that as a business owner, you’ll be responsible for paying your own taxes. You can generally expect to pay 30% of your revenue to taxes.
Pricing might feel like a bit of a puzzle that needs to be fit together, and it should. You want to make sure your pricing reflects your real costs as a business owner. The final piece to your business plan is that you’ll want to make sure you figure out how you’re going to track all of your business expenses. This will make it easier when it comes time to pay taxes, but it will also help you keep an eye on the health of your business. There are a variety of tools available to purchase to track this stuff, or you can start out with your own spreadsheet or pen and paper system. Whatever works for you is fine, just set it up and use it. Sometimes our tendency with money is to bury our heads in the sand, but that won’t help you make informed decisions down the road.
Starting a new business always comes with a certain amount of risk. By thinking through all of the different facets of your child care business, you will better be able to mitigate that risk. It can be scary to stand up and say “this is what my time as an early educator and care provider is worth,” but your business plan should give you confidence to do just that. Good luck with your successful and sustainable child care business!
Meredith Downing is the Curriculum Lead at Wonderschool, where she supports directors to build high-quality programs that help students grow and succeed.