Financial Management Article

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I don’t have a financial management degree, nor would I be considered a financial expert by that crowd. But I have been an executive director and program child care center director for a long time and have taught courses in financial management in early childhood education for colleges in New England. That, combined with the excellent brain and teaching of Gwen Morgan, gives me expertise in financing early childhood programs. Plus, I love math. Budgets and financial management give me a chance to use math in its simplest form, which, by the way, means anyone with a calculator can do it!

As leaders in our programs, we are charged with implementing policy and monitoring budgets. In many cases we are part of developing those policies, particularly around curriculum and chil- dren, staff, and materials. At the heart of this is the budget. It turns out that your budget really is policy — there is no

doubt about it. Morgan and Emmanuel start out Managing the Dollars (2010) with this concept and it rules our budgets — or should anyway. Let me explain. If you believe your staff should have profes- sional development, you have to pay for it somehow; either that or the staff does. If you believe you should have lots of art products, then you have to include that in your budget. If healthy eating and producing your own food are important, you must include money in your budget to accommodate those costs.

Many of us do not have control over the budgets we are responsible for moni- toring. And I am amazed at the number of owners who do not work with a budget. They “know what they have to spend and just spend it” is a phrase I hear more than you can imagine. My students in Singapore collect fees in the classrooms and, basically, principals spend petty cash to meet daily needs. Access to and control over the budget creates an opportunity to help determine what is important in our programs. At the very least, understanding how budgets work and speaking budget language provides a chance at having an influence.

Many of my students currently directing programs have reported that they were

able to understand and contribute to the budget in a new way when they started to understand financial concepts. Of course, a lot of it is the sense of confi- dence you project when speaking out of an understanding of those concepts. You can make suggestions and back them up with how items could be funded and that makes a difference.

An important point to remember is that there is a difference between developing a budget and playing the role of accoun- tant. An accountant looks at the history of a budget, analyzing and presenting numbers that help you see what your actual costs are. A budget is an educated guess at what you will need to run the kind of program you want to have. Your accountant can advise you about some

Lori Harris is the Executive Director for the Children’s Center of the Upper Valley in Lebanon, New Hampshire. She is also the owner of the Center for Learning, Adventure and Discovery, LLC, a developing outdoor classroom

and training environment. She teaches Financial Management for the Champlain College Early Childhood Graduate program and for the Connecticut Credentialing system through CT Charts a Course. She is a proud member of the new Exceptional Master Leader group. Lori is teaching for Wheelock College in Singapore during January and February 2016.

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Lori Harris 2015 Exchange Master Leader www.ChildCareExchange.com/leadership

Financial Management in Early Childhood Programs

by Lori Harris

Author’s Note: I edited this article just days after losing my financial management-in-ECE friend, colleague, and mentor Gwen Morgan. She ignited my passion for this topic and was a treasured supporter.

42 BUDGET AS POLICY www.ChildCareExchange.com EXCHANGE JANUARY/FEBRUARY 2016

you pay to be in and stay in (occupy) your building. This includes mortgage or rent, utilities, and repairs and main- tenance. It also includes any insurance you carry for the building and deprecia- tion for the building itself. A note on depreciation, since we are using a term that a lot of directors don’t think about. Depreciation is the reduction in value of an asset over time. For a building, and all depreciation, you will need the help of a professional accountant to deter- mine that cost. For example, deprecia- tion can cause cash flow problems for some budgets, but there are ways to accommodate it annually rather than in your monthly cash flow. Ask your accountant or auditor.

Supplies are a large part of our programs, but a smaller part of our budgets. Supplies include everything you need for teaching and caring for children: art supplies; materials for the classrooms; and whatever you supply for caring, including diapers, wipes, and so on. It also includes food and kitchen supplies, cleaning supplies, supplies to run the office, and first aid supplies. It also includes gloves — a huge expense in our programs.

I like to keep my consumables — things we use up quickly and have to replace — separate from the other supplies in my budget. Two items I have in that category are gloves and art supplies. You don’t have to split this out; I just have that preference.

We also have furniture and equipment, and some of us have vehicles. Think about what you use in the office and classrooms, as well as in your kitchen and laundry facilities. You will also have to maintain these items and fix them, so repairs and maintenance are needed in this category.

If you maintain a vehicle, consider maintenance costs and any insurance you are required to have. My experience

I like detail regarding personnel in my budget, so I break down this line item into positions. In addition, some of our employees receive benefits and some may not. For example, I have a line item for director, one for each of the other roles in the office, one for lead teachers, one for teachers, and one for other staff who receive benefits. There is another line item for staff who do not receive benefits; those that are part time, consultants, and all the people you pay for service.

Benefits include all the mandatory requirements, such as the employer share of social security and worker’s compensation. It also includes optional items such as health insurance, vaca- tion time, sick time, holidays, disability, and a host of other benefits that help you keep employees. It is important to carefully consider what you can afford; the healthier your benefits, the easier it will be to recruit staff. I know that many programs have minimal benefits as it can be costly. A healthy set of benefits will cost you somewhere between 20-30% of the salary line. You can change that percentage by charging employees a part of the cost.

A commonly under-budgeted item is substitute teachers. If you offer vacation and want to maintain ratios, you need substitutes. And people get sick. It is an expense that most of us do not include in our budgets, but we pay for them in staff morale if not dollars.

Our non-personnel items include every- thing else — and I mean everything. Morgan and Emmanuel (2010) include a very handy guide in their book. I will try to capture the essence of their suggestions here. It is useful to gather your information in categories and then decide how much to break out those categories.

Occupancy is your next biggest expense after personnel. It includes whatever

of the costs you have had in the past and then you make decisions about where to allocate costs to realize your goals.

We start with expenses because we need to know what we have to pay for before we know how much to charge. Too often programs start with income and figure out what they can expend rather than the other way around. Once we have the expenses down, we can figure out the income side and how to meet those expenses with only parent fees or parent fees and other income of some sort.

Budget basics are simple: Money comes in and money goes out. Many people exclaim that they are “bad with numbers” or “can’t do math.” But it turns out that most people I have worked with CAN ‘do numbers,’ but they were lacking some of the tools that are a part of financial understanding and the confidence to ask questions.

Line-item budgets are the basic tool we use in our programs and many small businesses. Yes, we are a small busi- ness in many ways and yet we have a variable that does not exist in most small business ventures. Our staff costs are wildly out of sync with other budget items, taking up between 60 and 80% of our budgets. We also have the issue of revenue mainly coming from parent fees. So let’s walk through a line-item budget and what to consider as you develop yours.

The operating budget of a center is typically put together in line-item form. That means the income and expenses must be captured in an organized way. Typically, in our budgets we have two categories of expense: personnel and non-personnel. Not every budget that deals with personnel splits the budget this way, but in our work it is helpful as a way to see the comparison between staff costs and other costs.

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parents, yet we will allow our staff to subsidize our parents with their low wages. In most cases, our families make more than the staff. There are no easy answers here and the variables are many, but we must figure out how to finance in such a way that we are no longer asking our staff to subsidize fami- lies who do not need to be subsidized.

There are several options if there is a gap between income and expense. One is to cut expenses. Generally that hit is taken by staff in the form of reductions in compensation, materials, professional development and/or benefits. Another option is to increase income by raising fees; certainly, make sure your fees are appropriate to begin with and are in line with your population.

Another is to seek outside funding, which takes time and effort from someone and most programs don’t go beyond the subsidies offered through the government. And finally there are shared services between programs, giving each program additional pur chasing power. This model has the potential to give programs more for its money so it’s worth exploring in your community. Fees for managing services can be considerable, so this is another consideration.

Financing our programs is complicated. Understanding and incorporating the concept of ‘budget is policy’ will go a long way towards improvement of the fiscal life — and quality of our programs.

Reference

Morgan, G. G., & Emmanuel, B. R. (2010). The bottom line for children’s programs: what you need to know to manage the money (5th ed.). Watertown, MA: Steam Press.

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tells me that most programs maintain a minimum of $1,000,000 in liability insur- ance for each vehicle!

Professional development is also often under-budgeted. Here you include any courses, training, or conferences you would like your staff to attend. Confer- ence attendance can include registration fees, overnight accommodations, meals, and travel or employees can pay part.

Other expenses to think about include advertising, phone, technology costs, licenses, and bank charges. These costs will vary by program; I have to pay for snow plowing whereas someone in a warmer climate doesn’t have to include that item, but you have more grass mowing.

Once you have all your items docu- mented, you have to organize them and decide what you want to group together. You want your budget to be useful, so do some combining within categories. Building repairs and maintenance can be combined with materials in one line item. All consumable materials can be listed in one line and other supplies can be listed separately in a category called ‘Classroom Supplies.’ Your budget doesn’t have to look exactly like someone else’s; it needs to reflect your particular situation in a way you understand.

Income is everything you have coming in; usually the biggest income comes from parent fees. Maybe you receive subsidy payments from organizations or the government. You may charge regis- tration fees also. Money from the USDA food program and grants may support you. All the income you have coming in must cover your expenses.

Parent fees are a touchy subject for most of us in early childhood programs because we recognize how hard it is for families to pay for the services we provide. We don’t want to overcharge