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Case Study - How a Child Care Centre increased profit by 450% 

Sally is the owner of a Long Day Care centre catering for around 50 children daily, aged from 6 weeks to 6 years. The centre is committed to providing a safe, secure and caring environment that is supportive, stimulating and enriching for all children; allowing them to learn and grow into confident and creative learners.

The centre has a great reputation and is known throughout the community as an excellent childcare centre. It is fully enrolled and has a long waiting list. 

Financial Situation

Sally is delighted with the positive feedback she receives from the parents and community, but is very concerned with the centres financial position. She doesn't understand why she is so busy, full enrolments, great reputation but isn't making much profit.

Sally came to Twelve Chartered Accountants asking for help. 

Observations

Twelve Chartered Accountants met with Sally and asked her detailed questions about her business, this not only included the obvious financial question, but delved into the operational side, Sally's vision for the business, where she saw herself in 5 years', what her goals were; questions you wouldn't expect accountants to be asking.

Sally was delighted that someone was taking the time to really understand her business and herself.

We completed a thorough audit of the business which examined all the costs and enrolment numbers, a breakeven analysis report, future cash flow projections, and cost review report of the business.

It was important that we exhausted every avenue to accurately determine why the centre was not making as much money as it should and identify recommendations.

We identified the following;

  • Demand was very strong and there was a long waiting list.
  • The centre demonstrated an exceptional standard of care which reflected the very high reputation of the business.
  • Operating costs per child was high in comparison to other centres.
  • Director's earnings low.
  • There were activities such as enrichment programs, incursions and music programs which was not included in the fees and no additional charges made to parents.
  • Teacher skills and training were high.
  • Staff retention rates were extremely high
  • Fees charged were comparable or slightly lower than other similar centres 

Recommendations

Based on our findings and detailed review of the business, We made the following two recommendations to Sally, Either;

  1. Keep her fees the same but reduce the centre's costs
    This recommendation was based on a competitive review with childcare centres around the area and the findings identified. Ways to keep price down included changing food (chldren meals) providers, making sure that all late payment were billed and paid. Staff only participated in necessary training and not additional training within the centres time. Also that programs such as music and incursions were paid separately by parents. 

    OR; 
  2. Increase her fees
    This recommendation was also based on a competitive review with other childcare centres around the area and the findings identified. This difference was that these were the things that made the centre unique and what the centre has such a high reputation and a long waiting list. 

Sally's Decision

Sally did not want to sacrifice the children's happiness, the standard of care they provided and did not want to sacrifice the centres reputation, after serious consideration Sally agreed that the best financial decision was to increase childcare fees.

Sally undertook a structured price increase, phasing a 25% increase in over a 12 month period. There was very little resistance from parents and demand remained as strong as ever.

Sally took our suggestions and made sure that she communicated the reasons for the price increases to her parents, explaining that to maintain the very high standards that everyone had come used to, she had to increase her prices.

Sally was amazed that this had the effect of parents looking to help her a lot more with the running of the centre. She realised that this wasn't just her centre, it belonged to all the children and their families that attended it.
Over the next 12 months, Sally increased her profit by 450%.

Sally is so happy with this result, she has began plans to open another centre.

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