CONTRACTS AND POLICIES

Your policies are the foundation of your business. They tell parents how you run both the service and the financial sides of the operation. Policies are worth a lot of research and thought because they are the key to profitability. You can ask other providers, or the local CCR&R agency, to find out what policies are used by successful child care businesses in your area.

Your written policy statement should include:

• Description of program philosophy
• Behavior guidance policy statement
• Basic daily schedule
• Supplies that parents will bring
• Your specific expectations of parents (children will arrive fed and fully dressed)
• Plans or procedures for parent/provider meetings or conferences
• Regularly scheduled special events (Library Story Hour)
• Transportation of children to school and/or classes
• Special activities and costs (swimming class, dance class)

Contracts should clarify the expectations that providers and parents have of each other. Here are some "best practices" used by successful child care providers.

• List adults who are parties to the contract
  • Require the signature of parents and/or guardians who share primary custody of the child and/or responsibility for payment.
  • List names of other adults authorized to drop off or pick up the child.
    
• List days and hours of reserved care
  • Charge parents for all of the hours of care that they reserve, even if they do not use them. Parents are paying for the "slot" that you hold for their child.
• List rates and fees and payment schedule
  • State the time period that the quoted rates will apply. Many providers adjust rates September 1 of each year, regardless of the date a child enters the daycare.
  • List Fees
    • Late pick up fee by the minute or quarter hour
    • Hourly rate for hours worked in addition to reserved hours. This can be higher than your rate for reserved hours.
    • Service fee for late payment or bounced checks.
    • Supplemental fees -- You may charge an additional fee for costly extra features of your service, such as transportation, arts and crafts supplies, music lessons, and field trips; for an annual cost such as liability insurance; or a one-time registration fee to new families.
  • Specify weekly, bi-monthly or monthly payment schedules. You may require payment in advance for each period. You may require a "last month's daycare" deposit
    • List any third-party payers
      • Will they pay the entire rate or will parents make a co-payment? When will payment be made?
      • Be aware of any state child care payment programs, your documentation responsibilities, program co-payment requirements, and eligibility requirements. For more information, contact your state regulatory agency or your local Child Care Resource & Referral (CCR&R).
      • Include parent responsibilities to complete required paperwork for third party payment.
    • Note: If customers have not fully used their employee-sponsored child care benefits by year's end in December, you can consider asking them to agree to a one-time child care fee or provider bonus.
• Describe expectations for scheduled and unscheduled child absences
  • Number of days per year which a child may miss, free of charge. Any additional days will be charged.
  • How and when you expect to be informed that a child will be absent
• List your termination of contract policy
  • How much advance notice do you need, i.e. two weeks or one month?
  • Build a "get acquainted" period into your contract; for example, two to six weeks. This allows you and the parents time to determine if this child care arrangement is best for the child. Either you or the parents may terminate the contract without penalty during this time.
• Specify provider leave days
  • List holidays during which your business will not be open. These are paid holidays, included in your fee structure.
  • List the days during which you will take your vacation leave this year. State whether you will provide a substitute or if parents are responsible for finding alternative care.
  • State what you will do when you are sick (ie. You will call the parents the night before).
    • Specify substitute care arrangements -- Will you arrange substitute care for your vacation and sick days OR will parents?
• Attach emergency medical information/release form and any required forms needed for compliance with third-party payer requirements.
• Attach a sick child exclusion policy
  • Clearly state that you cannot care for children with communicable disease. A Sick Child Exclusion Policy should be available from your local CCR&R agency.

PROTECTING YOUR CENTER (INSURANCE)

Starting and operating a business involves a degree of risk. It is important that you, like all business owners or investors, get adequate insurance protection for your business. If you aren't exactly sure what type of insurance will best protect the business, discuss the types of coverage you will need and make a careful comparison of the rates and coverage with several insurance agents before making a final decision.

Insurance coverage varies from state to state, but there are several types of insurance available for child care providers. Liability and accident insurance, however, are considered essential.

Liability Insurance

Almost every state requires that childcare providers follow certain health and safety guidelines. Providers are responsible for supervising the children at all times and for handling any emergency appropriately. Liability insurance generally is purchased to cover a childcare program for most injuries that may occur. If you have general liability insurance, the insurance company will defend you if you are sued. If the court decides that you are "liable" (meaning your negligence caused the child's injury and therefore, you should pay compensation), the company will pay the money judgment up to the limits of the policy.

The provider is liable and can be sued in court if a parent alleges that an accident occurred because of negligence or failure to exercise reasonable care. You, your employee(s), your home or your property can be found to be negligent.

Seven states require that providers carry liability insurance, at least in some situations, and many others strongly advise it. To find out about your state, contact the local office that licenses or registers family day care or call a providers' organization.

Most general liability policies cover four basic types of costs:

1. bodily or personal injury
2. damage to others' property
3. immediate medical relief at the time of an accident
4. legal costs to defend you in a lawsuit.

Other areas for possible coverage are:

• transporting children
• accidents where no one is at fault
• defense costs in the event of physical/sexual abuse
• damage to your property

There are, however, two basic types of commercial liability policies:

1. claims made
2. occurrence

With claims-made policies, you are only covered for incidents that are reported during the time your policy is in force. Occurrence insurance covers you for incidents that occur during the time your policy is in force. Your coverage is much broader, then, with occurrence insurance. Shop around to see where you can get the coverage you need for the best price. Use only licensed agents or brokers.

Liability insurance is expensive, but there are several precautions you can take to reduce the chance of accidents occurring.

1. Childproof every room where the children will be; imagine any possible accident, and prevent it.
2. Take first aid and CPR courses (call your local Red Cross for information).
3. Learn to keep an eye on all the children.
4. Keep walkways, stairs, and sidewalks clean.
5. Avoid fire hazards.
6. Choose responsible assistants and substitutes.
7. Develop clear health and safety policies.
8. Encourage parents to visit any time and give them your written policies.

You will find that these and other policies that you may implement will make your center safer. For additional information on the different types of Liability Insurance, contact your insurance agent.

Accident Insurance

For a small cost, you can buy insurance to supplement the family's medical insurance if a child or employee is injured. Talk to an agent or broker before deciding on the coverage.

SETTING YOUR RATES AND FEES

The number one reason that childcare providers choose to leave the business is that they do not make enough money. Health and safety regulations limit the number of customers child care providers can serve, so a child care business is naturally limited in its earning potential -- it cannot grow simply by increasing the customer base as other small businesses can. As a result, pricing has to be on target to produce the income you want. Consider your income needs and goals and apply the best practices below when setting your rates and fees you will charge.

Best Practices for Rates and Fees

• Know Your Market
  •  Price maximums and minimums vary with the neighborhood. You'll have to consider the going rates for daycare in your area. Your local CCR&R agency will have information about local child care rates.
  • State agencies that administer childcare payment programs set the rates that they will reimburse providers for care to eligible children.
  • Compare prices, hours and services of other child care providers in your area.
   "A successful small business practice prices its product at the middle mark or above."

• Complete a cash flow
  • Project out your expenses, and your income under different rate choices. Use realistic numbers that assume at least a 10% vacancy rate, and that allow for the slow months of childcare.
• Consider a Specialty Niche
  • Specialized services like infant-care, special curriculum, before- and after-school care with transportation, can command higher rates. They also involve higher costs, so make careful projections.
• Full-time , Part-time and Hourly Rates
  • The best practice is to set rates for all children by half or full days, not by the hour. If you do agree to hourly rates, set a minimum number of hours that will be charged each week regardless of the child's hours. Keep in mind that hourly time-keeping is expensive, and it encourages parents to use alternative free care whenever it is available to them, at your expense.
  • Part-day rates should be higher per hour than full-time, because a part-time child often prevents you from taking on an additional full-time child who bring in more revenue. This difference can be made up if several part-time children pay more.
  • Set a minimum level of daycare that you can provide, as well as a minimum payment. For instance, many providers have a minimum of half-time care. Parents may use only three hours per day, or only two days per week, but they will pay for half-time care at a minimum.
  • Set fixed days and hours for your part-time children, to avoid the scheduling frustration of being a "drop-in" daycare provider. Use your contract to set hourly rates for additional hours.
  • Define the number of hours that constitutes full-time care. Use your contract to charge hourly rates for additional hours.
  Paid Child Absence
  • Charge for reserved care whether it is used or not, except for the number of allowed absences set up in your contract. Otherwise you may be frustrated by losing income when relatives visit or parents have work vacation days.
  Beware of Family Rates
  • Additional children from the same family can be great if you save money by having one less set of parents to bill and to coordinate with. But you should be careful -- your cost savings may not warrant deep discounts for multiple children..
   "Never institute a new policy until you have run the numbers!"

• Supplemental Fees
  • Charge fees that cover your cost for swimming, arts and crafts and other special activities.
  • Charge families a one-time registration fee.
  Payment Schedules
  • Set the schedule and charge late fees when parents do not meet it.
• Build in a Raise for Yourself
  • Review and revise rates on an annual date such as September 1. Make all of your contracts renewable on this date, even for children who sign up later in the year.
  Learn to Handle Pricing Objections
  • As a professional provider you must be comfortable talking about your business. Talk value, and emphasize the benefits parents and children receive from your care.
  • Understand parents' concerns when they ask about prices. For many families, daycare is a major expense, and a source of anxiety. Plan and rehearse an understanding answer to concerns about pricing. Think about what your doctor, Sears, or the phone company would do if they were not paid appropriately.
  • Parents who really can't afford your care may be able to offer bartered services such as volunteering, building or other skills.
  "Most parents were completely supportive when we changed our policies. They liked the improved professionalism and stability of our child care."

EFFECTIVE RECORD KEEPING

Set up a simple record keeping system -- the simpler the better. If it is too complicated you won't use it.

An effective record keeping system will:

• Track real income and business expenses on a weekly basis.
• Project budget and cash flow.
• Document tax deductions and prepare records for tax time.
• Help you make effective decisions about marketing, staffing and policies.
• Demonstrate the net worth of your business to a bank, lender or buyer.
• Make a statement about your ability as manager and business owner.

Best Practices for Record Keeping

• Business Checking Account
  • It is very important to separate business and personal expenses and income in order to track success or failure of your business. Start a new checking account for your daycare business.
  • Deposit every dollar received, whether from payment or loans. Pay every business expense by check, including your own salary.
  Business Income and Expense Ledger
  • Track income and expenses on a monthly basis through a business ledger. General ledgers are available at the local office supply store, or use one of the off-the-shelf computer checkbook programs to categorize income and expenses.
  • Balance the ledger monthly. The ledger and checking account bank statement should agree at the end of each month.
  Child Care Ledger Systems
  • A child care business ledger is specifically designed for child care businesses and lets a provider know where his money is coming from, and where it is going.
  Filing System
  • Keep records in a simple filing system to provide paper documentation of what is recorded in the ledger.
  • Files that a child care business should keep are:
    • Receipts and paid bills - by month, alphabetical or category
    • Receipts for assets valued at over $100, with purchase date and value
    • Bank statements
    • Child care information - food program and provider training records
    • Contracts - business registration papers, licenses, insurance policies, lease, professional service agreements
    • Customers - information about each child, customer contract, medical release forms, child immunization records, emergency contacts
    • Inquiries (waiting list)
    • Payables - bills that you need to pay
    • Payroll records, if applicable
    • Receivables- documentation of invoices that you have submitted and that should be received
    • Staffing information
    • Suppliers
    • "To do" tasks
  • Some Records Must be Kept for Seven Years
    • Check with your local CCR&R or SBDC to find out which records to keep
  • Some Records Must be Kept Permanently
    • Check with your local CCR&R or SBDC to find out which records to keep
• Financial Statements
  •   Daycare businesses that are larger than home-based need to prepare income and expense statements and balance sheets.

Contact your local CCR&R agency or SBDC for more detailed training and assistance with setting up and maintaining your record keeping system.

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