Keep on top of cash flow at your setting

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In a recent report by the NDNA, 37% of providers reported parents paying them four or more weeks after the start of term, with 13% having to wait eight weeks or more for payment. Managing money coming in is clearly a concern for many providers, but having a good grasp of overall cash flow plays a crucial role in the sustainability of your business.

Cash flow is a fancy term, essentially, for describing the movement of cash coming into and paid out of your setting. It’s important to know the distinction between cash flow and profit/loss.

Profit is the amount of cash you have made after paying your bills. Loss is when your total outgoings exceed the amount of money coming in and there is a deficit (minus). However, profit and loss doesn’t take into consideration when these payments will move in and out of your account; whereas cash flow does.

Here’s an example of how cash flow works in practice:

Example

Money coming in:

  • Fees collected – £15,000

Money going out:

  • Staff costs – £10,000
  • Rent – £1,000
  • Bills – £1,000
  • All other costs – £2,000

Total – £14,000

So, according to this, your profit for the month would be £1000. Sounds good! But now let’s add in the dates of the payments coming out.

Money coming in:

  • Fees collected – £15,000 (1st)

Money going out:

  • Staff costs – £10,000 (30th)
  • Rent – £1,000 (1st)
  • Bills – £1,000 (1st)
  • All other costs – £2,000 (10th)

Total – £14,000

In this example, you collect your fees at the beginning of the month and everything else comes out after. So, you have enough money at all points of the month to pay your bills, rent and other costs. But, if your average fee for parents is £1,000 per month, and four parents pay a month late, you’ll be £3,000 down on the last day, meaning you’re £3,000 short when it comes to paying staff wages.

If this were to happen, you’d need to delay your own wages to cover costs, or even borrow money you hadn’t planned to. Now, it’s easy to see why managing your cash flow is one of the most important things to get right for the long term success of your nursery!

Top tips for managing your cash flow

  • Invoice parents quickly when payments are due. Electronic invoicing will make it more likely that parents will receive instant notification of the money they owe, compared with traditional paper invoicing.
  • Always take 1 month’s deposit so new parents are less likely to pull their child out of your setting before the start of term. Only repay the deposit when the parent clears their balance with you.
  • Knowing how disruptive it can be to have parents paying late, make sure parents always pay you on time! Investing in fee collection software will ensure parents never miss a payment.

Put fee collection in place at your setting today!

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