Child Care Financial Tips During COVID-19

Episode 207 – Strong finances is key to providing quality care. In this episode, we interview Rachelle Calina, Managing Director of Honest Buck accounting services, on key things to pay attention to when managing your childcare finances, how to get creative about reducing costs through collaboration, and practical steps to take to be proactive about your finances during and beyond the pandemic.

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Episode Transcript

Rachelle CALINA:

I think a lot of people just are naturally afraid of the expense that comes with it. But they’re not seeing that if the relationship if properly aligned, it can actually save your money in the long run.

Ron SPREEUWENBERG: 

Rochelle, welcome to the Preschool Podcast!

CALINA:

Thank you, great to be here!

SPREEUWENBERG: 

We’re delighted to have on the show today Rachelle Calina. She is managing director of Honest Buck Accounting. They provide accounting and finance expertize for organizations in early childhood. They’re based out of Washington, out on the West Coast, but providing services across the country.

Excited to talk to you more about what you’re doing and what you’re learning and what advice you’re providing during COVID-19, and especially as more and more centers are reopening and dealing with the financial challenges that come with that, combining things like lower enrollment with higher costs. It’s a little bit of a challenging environment out there if you are an owner, director, administrator of a childcare program.

Let’s start off, Rachelle, learning a little bit about you. What’s your background? Why did you decide to start an accounting firm that focuses specifically on early childhood?

CALINA:

So, I have been an accountant, a CPA [chartered personal accountant] for about 10 years now. I started my career in the Big Four [accounting firms of Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and KPMG] doing auditing for a lot of different types of companies. And very similarly, when I decided to leave public accounting, I moved… at first I was doing accounting manager for a software development company and I spent a little time at Expedia.

But I felt like I was really lacking [in] feeling like I was helping people. And I really thought about, who did I want to help, for me, education – and especially early education – is one of the most important things out there. And so I really wanted to focus, even if I myself couldn’t be a teacher. I wanted to feel like I was helping to impact these kinds of businesses.

RON

Cool, and what are some of the learnings that you’ve had now that you’ve worked with so many centers in terms of, what are areas where childcare and early-childhood education programs are struggling and need help when it comes to finances and accounting?

CALINA:

I mean, I think most childcare businesses, what I found is [that] the owners really love what they do. They really love impacting the children and running their centers. And almost every single one of them that I’ve talked to is not as savvy when it comes to the financial side. They love what they do but the financial side of that business is just completely outside of their everyday, normal realm of things.

And so I feel like with these people, we’ve been able to be extremely impactful, even more so than a normal marketing business or a legal business. We’ve been able to be more impactful by helping them see the big picture, helping them forecast, helping them understand what rates need to be set versus trying to struggle through it on their own, knowing that it’s not really their wheelhouse.

RON

And can you tell us a little bit more about what kind of organizations you work with in terms of size and scope and how you provide those services? Because I’m kind of just putting myself in the shoes of someone who’s maybe an owner, director of a childcare, early-childhood education program.

And to use the extremes, let’s say I have a family childcare program or a day home. Maybe it’s easy enough and I can’t really afford to have somebody like you help with my finances, my accounting. Or at the other extreme maybe I’ve got a lot of locations and so I can hire my own full time accounting and finance people. How does that typically work? And is there like a sweet spot there?

CALINA:

Yeah, we typically don’t work as much with in-home daycare centers. We work more with centers that typically have between 30 and 50 children in each center, if not more. I would say we probably have a mix of about 50% that are one center and then the other 50% are between two to four centers.

Once people have over four centers, that typically is at the point where they have to bring in somebody full time to do all of their accounting work. That tends to be about the life cycle of these types of businesses.

RON

Cool, and how does it work in terms of how you provide your services? Like, do you bill by the hour? Or is it like a set, every month, “This is what services we provide and the cost to you”? Or how does that work?

CALINA:

We prefer to have it set a certain amount every month just so there’s no surprises. The one thing that daycare centers say, we know that they have typically very low margins. And we don’t want a month where… for example, we have one daycare center where we had them set up on a recurring billing schedule where the invoices just went out automatically. The only thing we would have to do is go in and tweak their invoice if somebody dropped or if somebody changed a schedule. But beyond that, everything was very automated.

And then COVID-19 hit and suddenly about 90% of their students were not going. So, we were in a position where we had to send out individual invoices to every single [center]. Some we’re still going but some weren’t. But they wanted to hold their spot. So, the daycare was charging 50%. Or they weren’t going at all, but they wanted to give a donation. So, we had essentially 90 invoices all of a sudden that we were having to create manually.

And in that case, obviously, if we had been billing by the hour, that daycare would have gotten hit with a substantial fee for the amount of extra time that took. But we don’t really like to work with clients where they don’t want to engage us because they don’t know what it’s going to look like month-to-month. So, we’re really big on just saying, “Hey, here’s your monthly price we agreed to. And this is what you’ll expect to see for the whole year.”

RON

Yeah, and I can imagine a big part of that is even just sort of the mental space to say, “Here’s somebody who’s a professional that’s going to deal with that for me, I don’t have to worry about it.”

Speaking of which, though, this is a really worrying thing right now. And so what can you recommend to childcare programs out there who may not be working with somebody like yourself in terms of what they should be thinking about and prioritizing right now when it comes to their finances and making sure they can keep things afloat, frankly?

CALINA:

I think, honestly, the biggest thing they can do is really look at it. And I know that sounds so basic, but I’ve found in working with a lot of different businesses that the biggest issue is when something is scary or when [you know something] is not going to turn out the way you wanted to, they tend to just kind of flip it off and not look at it until something has to be dealt with. Either there’s no more cash and that’s going to cause a huge problem or something else is going to come up and it’s going to force them to.

Really, the best advice I can give is to be looking at it every single day, to make sure that you have your budget updated for what your expectations are now with reduced tuition and be updating it constantly.

Set up a weekly cash flow forecast for the next 30 days and be looking and seeing if you’re going to be in a position where you might be short on cash one week. So, that way, it’s not something you’re trying to struggle through on 24 hours notice, but you saw it coming. You could make changes. Making sure that you’re just taking action on these items before they cause you a lot of financial heartache in the next month or two.

RON

Yeah, I feel like finances are kind of like – math and technology sometimes fall into that bucket, too– of just, like, “I’m not good at it,” or, “I don’t like it. So, I don’t really want to look at it or spend time on it.” But making that mental leap to say, “You know what? Maybe I’m not comfortable with it but this is really important,” is key. So, that’s a good point.

Based on the work you’re doing out there right now, what are some of the things you’re seeing childcare programs do where they’re having success – that’s all relative, I think, right now – but having success in making their finances work for them in this environment?

CALINA:

So, as I spoke on before, keeping the seats for the kids – even if they’re not going – and charging for the center to hold the seat for that child. That’s been a really big success. It’s almost meeting the parents halfway. I know a lot of them that I’ve seen have said, “Okay, well, if your child comes, we will only charge 90% right now. But if your child doesn’t come but you still us want to hold their place so we don’t have to do any sort of re-registration or anything like that, then we will only ask you to pay 50%.”

And also, really, the centers I’ve seen surviving the best right now have been ones that were non-profits because they’re able to ask for donations, whereas a for-profit company doesn’t have that ability.

RON

Yeah, it’s interesting, though, because I imagine there’s also some childcare programs that are somewhere in between there where maybe they’re for-profit, but they have really good relationships with their families, which I guess would just be a point that I would reiterate to listeners: the relationships take a lot of work and a lot of time to build. But it’s times like this where they pay off, as opposed to thinking about your customers really from a transactional standpoint instead.

CALINA:

Exactly.

RON

And when we think about finances and accounting, like you said, it can be a bit scary and there’s a lot to think about. What are the specific services you provide if we get a little bit more tactical?

CALINA:

We provide full service, end-to-end. So, the very basic, obvious bookkeeping; we assist with invoicing; and as you could kind of tell from what I said previously, we will a lot of times communicate directly with the families related to invoicing. So, it kind of pulls the school out of their day-to-day, “Hey, can you provide me with this,” or, “Hey, why was I charged for that?” We will manage all of that.

We manage paying vendors; and then we also do any sort of state and local tax filings, as well as the year-end federal filings. And so that’s kind of the accounting side of what we do.

And then on the finance side, really more in the realm of helping them forecast, helping them look at, “What will a 10% increase in tuition look like for my finances? Am I able to give my employees a raise? And how much, if we do raise tuition? Am I able to afford benefits? Am I just able to afford an upgrade? Can I open a new center?” We look at things like that and we help answer those questions.

RON

It’s interesting, too, your point about invoicing and collections and dialog back and forth with families because I think that’s something that a lot of childcare directors and business owners are uncomfortable with. And rightly so – it’s awkward to go to families and say, “Hey, we love you guys but you owe us this money.” So, I guess in some ways it’s kind of nice, also, to separate that and have somebody else manage that for you, so you can kind of keep that independence.

CALINA:

Yeah, we’ve had definitely a lot of positive feedback around that because you’re right, they really do look at the children and the parents as family. And they don’t want to be harassing their family for money. And so having somebody who’s completely outside of the day-to-day managing all of that does tend to create a lot of relief for them.

RON

Cool. And any other practical tips or learnings that, again, you’ve had from your significant experience in this area for those listeners out there who are running childcare programs to think about, whether that’s now or in a more normal, steady state, as well?

CALINA:

I would definitely say, obviously be monitoring expenses. Again, that’s a really basic thing. But a lot of times we only look at it when there’s a problem. And it’s something we really should be looking at every single month to see where our money is going and where we can be cutting back.

Another: especially because we are based in Seattle, we work with a lot of Seattle childcare services and they’re really big on creating alliances with other daycare centers. And especially now that might be a really good way to help cut costs if you’re able to buy PPE [personal protection] equipment in bulk, versus buying smaller quantities just for your center. That might be a way to save money right now.

If you have less children attending you may not need admin [administrative] time the way that you did before. So, possibly being able to share an admin with other centers would be a good way to cut costs. But just kind of… I think that other centers don’t need to be a competition. They can definitely be your allies and help you out.

And then more to kind of COVID-19: with the PPP [Paycheck/Payroll Protection Program] loans, obviously make sure that you’re keeping records of all of everything that you’re spending related to the PPP loan.

One thing that I’ve noticed is that a lot of people think that all they’re going to have to do is submit receipts and that’ll be the end of it. The truth is there could be a possible audit there. They’ve said that they’re definitely auditing businesses that borrow over $2M but that doesn’t exclude the smaller borrowers.

So, definitely make sure you have all your records in place, show how much of a decline you’ve had in attendance. And just make sure that all of that is together instead of trying to put it all together after an audit has started because that information that was put together before an audit starts is a lot more convincing than information that’s put together after an audit starts.

RON

Which is also in alignment with your other advice about being proactive and planning in advance, which is never the thing that’s top of mind, but it comes handy.

CALINA:

Exactly. And I would definitely say, just kind of as a last piece of advice as well: Pay your taxes. There’s a lot going on right now, especially with the IRS saying that if you pay your taxes [or] your payroll tax a little bit late, we’re not going to penalize you right now. But honestly, pay your taxes because if you continue to just not pay and not pay it can very easily become a huge burden when those taxes are actually come due and the IRS is going to try to collect them. So, I would just say, part with the money now and that way have peace of mind that you don’t need to worry about it later.

RON

Cool. So, for a lot of the reasons you described, namely that most folks who are operating a childcare or early-childhood education program are not finance and accounting experts but early childhood experts, it makes sense to work with somebody like yourself. Why do you find some programs decide not to have an accountant, I guess? I’m just curious because it seems to make a lot of sense.

CALINA:

I think it’s honestly just the fear of the expense. I think it’s similar to kind of having a lawyer on retainer. I think a lot of people just are naturally afraid of the expense that comes with it. But they’re not seeing that if the relationship is properly aligned, it can actually save you money in the long run.

RON

Yeah, I assume there’s probably a business case for a return on investment there. If, like you said, you’re looking at the expenses regularly and challenging, “Are we being efficient with our spending in the proper financial planning?” Like you said, I would imagine you would end up at some point breaking even or saving money. Plus that mental mindspace that you free up I think shouldn’t be understated.

CALINA:

Exactly.

RON

And then lastly, let’s say, “Okay, this sounds like it makes sense for me to work with someone like Rachelle.” I feel like there’s probably two options. One is, I can go with somebody local who’s an accountant in my town or my city or is a friend of a friend or something. Or I can go with somebody like you who maybe [is] not in my town but you specialize in early-childhood education. What are the pros and cons there if I’m evaluating that decision?

CALINA:

I think a lot of people do find value in being able to work face-to-face with their accounting professional. Although, again, thanks to COVID-19, I think we’re all getting very comfortable with Zoom calls and phone calls and the like. So, I mean, I can definitely see where just feeling like, okay, “Well, he’s just down the block,” is a really comforting thing.

But I can definitely also tell you from experience, talking to your clients that are coming on, that they definitely have felt like their accountant didn’t completely understand their business the way that we are able to understand the business, the way that we’re able to have – because we work with so many childcare facilities – benchmarks that we can look at and go, “Okay, you’re really out-of-line compared to what we see with all these other businesses. What’s going on?” Whereas if you’re the only daycare center or the only childcare center at your accountant’s office, you’re not going to get that kind of information. It’s going to basically just be like, “Well, it seems like things are going well.”

RON

Cool. This has been very interesting, Rachelle. I think these kinds of services are super, super, super important. It’s something we really try to stress on the Preschool Podcast. Education is why we’re doing early-childhood education. But the quality of that and our ability to deliver it depends on our finances. So, very important. If I’m listening to this episode, I want to learn more about the work you’re doing, where can folks go to get more information, Rachelle?

CALINA:

Our website is www.HonestBuck.com.

RON

Cool, that’s www.HonestBuck.com. Rachelle, thank you so much for joining us on the Preschool Podcast today, wonderful having you as a guest. And thanks for all the work you’re doing in early-childhood education!

CALINA:

Thank you!

Carmen Choi

Carmen is the Marketing Coordinator and Preschool Podcast Manager on the HiMama team. She's been working with childcare business owners and consultants for 3 years. She is passionate making connections that empower the ECE Community through knowledge-sharing to support better outcomes for children, their families, and society!

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