5 signs of a financially healthy business

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In the hustle and bustle of managing a childcare setting, it can sometimes be difficult to pinpoint how well your business is doing financially. So, we’ve put together a list of 5 things you can look out for which show that you’re on the right track with your money management.

1. You’re keeping on top of aged debt

Aged debt is money that’s owed to you. This is typically overdue by 30 days or more.  In a survey we carried out in 2015, we found that settings had to write off a typical yearly debt of £2,991 from parents. Aside from chasing parents who are late payers, you can reduce the incidence of debt by using automated fee collection.  This service sets parents up on monthly Direct Debit; helping to take the guesswork out of when you’ll next be paid.

2. Your expenses are not exceeding your rate of growth

As your revenue grows, in an ideal world you’d want your expenses to stay flat. However, this is not always possible, especially if you’re hiring more staff to deal with an increase in demand. Instead, it’s more realistic to expect your expenses grow in line with the expansion of your business. This means, if your revenue has increased by 5%, you’d want to see an increase in expenses of no more than 5% during the same period.

3. You have a healthy net profit

As your business grows and you hire more employees, your profit margins will change. However, the most important one to keep an eye on is your net profit. This is the amount of money you have left after you’ve paid all your operating expenses, interest and taxes. Market analysts would generally agree a net profit margin of 25% or more is healthy.

4. You invoice ad hoc sessions promptly and accurately

When parents ask for extra sessions, it can be easy to forget about raising an invoice at a later date. So, make sure you have a system in place which can keep track of any money owed for ad hoc childcare. It looks unprofessional if it falls down to parents to remind you to invoice them for the extra session they booked last month.

5. Your customers pay at the same time each month

If you have parents who are consistently paying their fees late, this can severely impact your cash flow and make it difficult for you to make ends meet at the end of the month. Asking parents to pay their fees by monthly Direct Debit helps to guarantee when you’ll next be paid, and is one less thing for them to have to worry about.

Say goodbye to late payments with automated fee collection!

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