Financial planning

Financial planning is essential for your business to remain sustainable. The most effective way to achieve this is by forecasting and monitoring all income (money coming in) and all expenditure (money going out).

To do this you must set up a financial forecast or budget and then monitor how your actual figures compare against the forecast figures. Your forecast can help identify any future financial constraints or problems in a timely way and enable you to plan corrective actions promptly. This is essential for your business to remain sustainable. A financial forecast can also be in the form of a Cash Flow forecast.

What is a financial forecast?

It is a statement of what your business expects to receive and spend. It is usually prepared on a spreadsheet, by detailing every item of income and expenditure expected each month, over a period of at least 12 months. It will indicate the expected surplus or deficit for any given month and, on a cumulative basis, will indicate the financial position or balance at the end of each month.

If you are starting a new childcare business your initial forecast will have to be based on informed estimates. If you are setting a forecast for an existing business, you will need to use the actual figures from the previous year’s trading and allow for any inflationary increases or other changes.

The income should be based on your projected occupancy and applicable fees and funding rates. The expenditure must include all expected expenditure i.e. all operating costs (fixed and variable) and expected capital costs. For a new business it is important to include all Start-up costs too.

Fixed costs remain more or less the same irrespective of take-up of places e.g. rent.  Variable costs fluctuate depending on the occupancy e.g. food costs.  Capital costs are usually for longer-term items e.g. property improvements and furniture.

It is important that you do not over-estimate your Income or under-estimate your expenditure.

Further information

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