Since operating a childcare center will consume much of your time, you may discover that you don't have enough time to perform daily chores like cleaning the house, doing laundry, going to the market or spending time with your family.

Even in an office setting, it is very difficult for some people to make and keep work schedules. As your own boss, the problem can be much greater. To determine the amount of time you will need to devote to the children, draft a weekly task timetable listing all current and potential responsibilities and the time required for each.

You may have to rearrange your daily schedule to accommodate the children. Set aside specific days or times, depending on the chore, for house cleaning, doing the laundry, going to the market and preparing dinner for your family. This will allow you time to complete your chores, time to care for the children and time to spend with your family. For example, if you are accustomed to cleaning your house early Friday morning, it may be better to clean the house in the evening after the children leave. By allocating specific rooms for the children to use and closing off family rooms, you will provide a degree of privacy for your family and will prevent the children from messing up the entire house.

There are many things that you can do to help manage your time wisely. So take the time to create a realistic timetable that will allow you time to devote to your home and family and time to care for the children, as well as taking care of your own personal needs.

GETTING READY FOR BUSINESS

Preparing for opening your business is the next critical area. The following sections are grouped according to function. They are designed to help you prepare for "Opening Day."

Name and Legal Structure

Choosing a name and legal structure for your center is important, especially if you plan to borrow money to start your business. Many entrepreneurs seldom consider these points until the questions appear on the loan or licensing applications. It's possible to start as a sole proprietorship and then grow into a different form of business.

Select a name that's catchy and easy to remember. Get ideas from your family and friends; they are an excellent source for generating ideas.

Think carefully before deciding on the legal structure for your center. Most people operating childcare centers, operate them as sole proprietors. However, you may find that incorporating or forming a partnership offers more advantages.

Consider the following points when choosing the legal structure for your center:

• Sole proprietorship: The owner is the business. You must file business and personal tax returns at the same time.
  • Advantages: Simple and inexpensive.
  • Disadvantages: personal legal liability.
• Incorporation: A likely choice for businesses with employees or bank financing. Attorney and fees costs from $500 to $1,000.
  • Advantages: Credibility and personal assets are protected if the business fails or is sued.
  • Disadvantages: Taxes on profits potentially higher than with a sole proprietorship. Subchapter S Corporations allow business profits and losses to become part of the owner's personal taxes.
• Partnership: A legal mechanism that divides profits and losses between participants. Partnerships are governed by the law of the jurisdiction in which they are formed.
  • Advantages: For the protection of each partner and to ensure effective management of the business, partners should enter into an agreement which sets forth their respective rights and responsibilities.
    • Allows some businesses greater financial resources.
    • Allows individuals with complementary skills to become part of the management of the business.
  • Disadvantages: Unlike corporations, each partner comprising the partnership is personally liable for the partnership's debts.

   

LICENSE REQUIREMENTS

Before starting your childcare center, know the many regulatory systems that will affect your program and future decisions. Most states, by law, require that childcare centers be licensed. Some cities and counties may have additional licensing requirements, such as health requirements, life and safety codes, fire inspections and zoning laws. Check the National Resource Center for Health and Safety in Childcare for Individual State Requirements.

Even though licensing requirements vary from state to state, most licensing regulations include the following:

• Physical Space - number of square feet needed per child for both indoors and outdoors, depending on the children's ages, lighting, heating/air conditioning, ventilation, plumbing.
• Health Requirements - annual medical examinations for staff and for children may be required; immunization records usually are required, and even if they aren't, it's an important safeguard to consider.
• Staff-Child Ratios - the minimum number of adults required for a given number of children, depending on their ages. Some states also regulate the maximum size of groups of children, in addition to specifying minimum qualifications for staff.
• Food Preparation Procedures and Nutrition
• Emergency Procedures
• Educational Program Requirements
• Record keeping
• Building Safety Regulations - may include sections on type of construction, number of exits, fire doors
• Sanitation (health) Requirements - may include sections on plumbing, requirements, food preparation and equipment, adequate ventilation in bathroom(s) and classroom(s)
• Fire Regulations (Life and Safety Code) - may include sections on posted fire drill procedures, adult-child ratio requirements, number of exits
• Zoning Regulations - may include sections on number of square feet per child of outdoor space, fence requirements, type of neighborhood where small businesses may be located

Check the zoning regulations in your area with both the local government and with any property owners or homeowners' associations to find out if the type of childcare services you are planning to provide is permitted or if there are restrictions. There may be a local childcare advocacy group or professional association that can answer your questions and help you with zoning problems.

The licensing process is also described in the licensing regulations. The following outline briefly identifies the steps involved in obtaining a license.

• Contact the licensing office in your state.
• Obtain a copy of the licensing regulations. Read them carefully.
• Arrange a meeting with licensing specialists. Go over the regulations and procedures for obtaining your license.
• Contact inspectors for building, sanitation, fire and zoning codes and arrange for them to visit your center. Remember even if your center is located in your home, you will have to meet certain safety regulations.
• Arrange for the licensing specialists to visit your center.
• Fill out and submit your licensing application once you have fulfilled all the requirements.

Since licensing regulations and procedures vary for each state, contact your local Licensing Office for specific information.

Many very successful child care centers are located in the homes of the providers. The advantages of operating a center from your home as opposed to an outside location are:

• it's less expensive
• it's convenient for the provider and generally the parents
• the overhead is lower
• it offers more flexible hours, and
• you're closer to your family

There are, however, certain safety regulations with which you must comply. To meet these requirements, you may have to make minor changes to the rooms you will be using. Before you renovate and after you finish, have the licensing specialist and building inspector visit your home. Their suggestions and recommendations can save you money.

You also are required to have adequate insurance protection for the center. If you don't already have fire and theft insurance for your home, you will need to obtain a policy. If you have insurance, make sure your current policy covers the supplies and equipment that you purchase. You will, also, have to purchase liability insurance--it will provide protection for your center, staff and children. More detailed information on insurance protection is provided in the Section on Protecting Your Center.

TAX LAWS

Licensed childcare providers, like all business owners, are legally required to meet certain tax obligations. As a business owner, you will have to pay both federal and state taxes. The legal structure of your business will determine the amount of taxes you will pay and the forms you will use.

Sole Proprietorship

Each year, you will use Schedule C Form of the Basic 1040 Individual Tax Return for reporting your business income and expenses. Good record keeping of both income and expenses is essential in order to report the proper information on these tax forms.

Income - keep a ledger of all the money you are paid for childcare, whether in cash or by check. Record each payment, especially cash, immediately to avoid overlooking a payment and causing bookkeeping error. Your ledger should include:

• Client's name
• Date of each payment
• Period covered by the payment
• Amount paid
• Receipt number

Payments should be deposited in your bank account and cash for daily operations should be withdrawn by check only. It's a good idea to open separate bank accounts for your business. This makes it easier to monitor business income and expenses. It will certainly make reporting your business taxes easier.

Expenses - all payments that you make for your center, whether by cash or by check, are business expenses. To maintain adequate records of these expenses, always save your receipts, especially when you spend cash. The better your records, the easier it will be to complete your tax forms at the end of the year.

Certain items may qualify as tax deductions if these purchases are made solely for your center:

• toys and activity supplies
• food for the children in your care
• playground equipment
• wages for assistants and substitutes
• advertising
• legal and professional services for your business
• office and record keeping supplies
• insurance for your business
• child care related travel
• typewriter/computer
• utilities
• depreciation

Expenses that benefit both your center and your family will not ordinarily qualify as a tax deduction. But tax regulations do permit you to write off any specific area of your home that is used strictly for business purposes.

Other forms that you may need to comply with federal regulations are:

• Schedule SE--Social Security or self-employment Tax.
• Form 4562--Depreciation.
• Form W-2--Wage Statement.
• Form 1040ES---Federal Estimated Tax Payments and State Estimated Tax Payments.
• Schedule C 1040 Individual Tax Return.

Corporations

Taxable income for corporations reflects deductions for costs of doing business. Corporations are taxed based on a graduated scale of Taxable Income. Use Form 1120 to report the annual income of the corporation.

The items listed as deductible under proprietorships are also deductible for corporations. However, if you operate a child care center in your home, certain items are deductible only to the extent such costs relate to the operation of the center. These items include:

• heat, water, and electricity.
• cost of staff salaries unless they are unreasonably high.
• depreciation, which is deducted in computing taxable income.

Distribution of profits to shareholders, which are made through dividends, are not deductible by the corporation. However, these dividends are subject to double taxation in that they are deductible by the corporation (i.e., they are paid with after-tax dollars), and shareholders are taxed on receipt of dividend distributions.

Partnerships

A partnership is a so-called "pass-through" entity. The partnership itself pays no tax. Each year the partnership must file an annual information return, Form 1065, Section 6031(a) with the Internal Revenue Service. In addition you must prepare Form K-l, Section 6031(b), which spells out each partner's proportionate share of profits, gains, losses, deductions and credits. Such amounts are reported on each partner's tax return.

S Corporations

These are hybrid entities having characteristics of both corporations and partnerships. S Corporations pay no tax but must file annual information returns and prepare statements for each of the shareholders, showing the items of income, gain, loss, deduction or credit allocated to each shareholder for the taxable year. Such amounts are reported on the shareholders tax return (Form 1040 Schedule C for an individual).

Reporting business taxes can be a very complicated. tricky matter. To avoid costly errors, anyone contemplating opening a family day care home, or any business, should consult a tax specialist (accountant or lawyer).

This section is not intended as a substitute for tax advice by a professional tax specialist nor does it list all the forms which must be filed by each entity. For additional information on these and other forms, contact' a tax specialist or the IRS.

Tax Exempt Centers

To qualify for certain federally-funded programs, you will have to establish a non-profit center. By doing so, you are eligible for tax-exempt status. In a non-profit organization, any money left after expenses is returned to the operation of the center (i.e., salaries, remodeling). You must, however, file an application and meet IRS eligibility requirements to claim this status.

Advantages of tax-exempt status:

• state sales taxes do not have to be paid.
• contributions are tax deductible to the donor whether made by an individual or foundation.
• grants are easier to obtain from both private and public sources.

To qualify for tax-exempt status, incorporation is necessary. The process for incorporation varies widely in each state, but all require by-laws, which will be specific to your organization and many require a Board of Directors. Information on incorporation can usually be obtained at the Secretary of State's Office or the Department of Corporation. A small fee is usually required.

Once you have filled your Articles of Incorporation and all other state requirements, you can file for tax-exempt status. Contact your local IRS office for information on tax-exemption and the proper forms.

Remember, even with an IRS exemption, you are still required to pay state taxes. To receive state exemption, you must file with the appropriate state agency. The state, however, will not give an exemption until the IRS exemption has been granted.

Before deciding on a non-profit center, contact your lawyer. If you don't have one, contact the local bar association for a list of lawyers' names. Sound legal advice will provide the information you need to help you make the right decision.