246: Become Prepared for the Unexpected: How to Create an Oh Sh*t Fund

In this episode of "Child Care Conversations," Kate and Carrie dive into the nitty-gritty of financial planning for childcare providers. They chat about the importance of having a financial safety net, humorously dubbed the "oh sh*t fund" (OSF), to handle unexpected changes like those brought by the COVID-19 pandemic. 

They share practical tips to build this fund, such as using registration fees, late fees, and part-time care income. The goal? To ensure your childcare business can weather any storm. With a friendly and resourceful tone, they make financial planning sound not just necessary, but totally doable! 

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Transcript

Marie 00:00:01  Welcome to child care conversations with Kate and Carrie.

Carrie 00:00:05  Hey, guys. So I want to talk to you about your savings account. Are you ready? Savings accounts.

Kate 00:00:12  No, no, I'm not ready.

Carrie 00:00:14  That is not the first thing that people think of when they think of childcare. They do not think of the savings account. But that's what we want to talk about is how to fill up your. In business, we don't usually call it a savings account. The bank does, but we call it your contingency fund or your sinking fund.

Kate 00:00:33  Rainy day fund.

Carrie 00:00:34  Rainy day fund. No. That's what the Texas state government calls. Okay, so an account, whether it is a separate bank account or whether it's just a paper account, but a place that you are putting money for when things change.

Kate 00:00:51  Wait, wait, wait, you mean like things have changed in the last six months?

Carrie 00:00:55  Well, I mean, things are constantly changing. There's always changes in the market and it might be broad across the country changes, or they may be specific to your neighborhood changes.

Carrie 00:01:09  So it can be either way. And this is something Kate and I have been preaching about for more than 20 years, and it really came to fruition in 2020. So we're just kind of doing a little bit of look back at what happened five years ago, like where were you in your business five years ago, where.

Kate 00:01:31  Five years ago, I didn't know what was going to happen in ten days. Yeah.

Carrie 00:01:36  You never know what's going to happen in ten days. That's my point, is that sometimes there's a global pandemic and nobody put that on your calendar.

Kate 00:01:47  Nobody told me.

Carrie 00:01:48  Yeah, I didn't have that as an appointment. Right. and five years ago today, we were still very much in the different states were deciding whether child care should be all the way open, sort of open, maybe open. Maybe you had to submit paperwork to work in child care, or to have your kids in child care. Like, this was a crazy time five years ago. But here's the thing that could happen in a different way.

Carrie 00:02:18  Next week. A large employer could decide that they've had a whole bunch of remote work, and everybody has to go back to the office now, okay, that's going to increase the demand for child care.

Kate 00:02:31  Or just the opposite.

Carrie 00:02:33  Or for full time child care. Or they could be like, we're closing our physical plant, everybody. you know, that work from home thing was working out pretty well. We try to force you all back to the office. Everybody got grumpy, so we're back to letting you be at home. Then the need for full time care might go down. Or maybe there was a hospital. That is.

Kate 00:02:58  An airport.

Carrie 00:02:59  Or airport, right? That is downsizing or upsizing either one. Right. So maybe the local elementary school is being repurposed into a neighborhood community center because the enrollment is low at that elementary school where you've been picking after school kids up, you don't know when those changes are going to happen. Changes will happen because of things that happen in Washington, D.C. that's not what I want to talk about.

Carrie 00:03:29  I want to talk about what's happening for your program. Absolutely. And if it comes from the government, that's okay. If it comes from a local employer, that's okay. If it comes from a global pandemic, it's not okay.

Kate 00:03:44  Well, I'm not sure it's ever okay, but what we want to talk about today is going to be relevant across the board. So whether or not we end up with a measles, Covid, flu or, you know, major employers downsizing or, you know, pick one. Right.

Carrie 00:04:02  So or pre-K being picked up by the neighborhood elementary school or head start being closed down, or there's so many things that can change. And if you have a savings account or a retained earnings account or whatever you want to call that pile of money that is there.

Kate 00:04:24  Can we call it the oh shit fund?

Carrie 00:04:26  Sure. We can call it the. Fund the OSF. So we'll just call it from now on, the OSF.

Kate 00:04:36  I'm going to write that down.

Carrie 00:04:38  So if you've got the OSF then you can handle it.

Carrie 00:04:44  You can buy yourself a little bit of time, but that doesn't mean that you use it all up. Okay. So that fund in a perfect world, in the world that I want you to be living in, is that you have six months of operating expenses in that fund.

Kate 00:05:06  Okay, so you mean like six months of my rent?

Carrie 00:05:08  No, no, no. Your payroll, your taxes, your milk money. All of it for six months.

Kate 00:05:16  Oh, okay.

Carrie 00:05:17  So that's a lot of money for some of you guys, right? That's like, you want me to have $1 million in a bank over here? Yes, I do, I if you have $1 million in it, I want you to be an interest bearing account. Really? I would like all of, your savings account to be in some sort of interest bearing account. And if we need to talk about where to put your savings in an interest bearing account, let us know, and we will have a second conversation about that.

Kate 00:05:45  Well, we we can't give them a couple of references. Right. Like there's NerdWallet to go do your research on. And then there's a couple of guys, what are the two guys that So they have a podcast.

Carrie 00:05:55  Yeah, I listen to so many podcasts. I don't know which one you're talking about.

Kate 00:05:59  I don't know, I don't listen to that many you'd think I could remember. Anyway, there's some podcasts out there that that talk about how to do the research and finding good, you know, interest everything. Right. So the lowest interest on certain things, the highest interest on other things and how to use.

Carrie 00:06:14  Lowest interest on credit card, highest interest on savings account. there is a great podcast called bad with money. and that is done by a woman who is in either her late 20s or early 30s. and she always thought of herself as bad with money. So don't necessarily start with her most recent episodes. Start with the earlier ones. and then, now you got me thinking.

Carrie 00:06:44  What is the other one that I listen to all the time right now? So I'm going to look that up.

Kate 00:06:49  Because, okay, well, while you're looking that up I'm going to talk just a tad. So as you are contemplating even the concept of an OSF, Kari's figured out what she's going to say.

Carrie 00:07:00  It's called the financial feminist. So that's the other one. Bad with money on financial feminist are the two that I would recommend. Okay, so you were saying you have to have the fun.

Kate 00:07:10  What I was saying is, as you're starting to contemplate the concept of an OSF, we want you to do this on purpose. So in other words, don't make this accidental. it doesn't mean go take a loan out. It means to purposely fund your OSF. And you can do this a couple of different ways, Carey. You and I were talking beforehand about some of the different ways some of our clients currently do it, how we used to do it and, you know, maybe even some other ideas that we've heard other programs around the country do successfully.

Carrie 00:07:45  So, okay, first thing people are going to say is, oh, I'll just save money into there. You're not going to save your way into out of this problem. This is not a saving problem. This is an earning problem. So you're not going to be like, okay, I'm going to save 5% and put it in. No, this is not a savings problem. This is an earnings problem. You need to earn money to put into this account specifically.

Kate 00:08:13  So in other words, any of the suggestions that you start today for the next however long it takes you to fund your OSF put into that account directly? Like don't use it for operating funds, don't use it to give a raise to folks. This whole goal is to fund your OSF.

Carrie 00:08:37  Okay. So let's talk about what I did when I was a brand new baby director and owner. So when I was a brand new baby director and owner, and I had spent almost all the money I had saved up to open my first school so there was not much left in the kitty.

Carrie 00:08:53  So how did I fund it? Back then? I took the registration fee every time somebody registered for the program, and half of it went to whatever I needed to do to get that kid up to, you know, ready for their first day. So buying them t shirts if I needed to buy another cot or mat, if I needed to buy more crayons because I was bootstrapping it. So sometimes I needed to buy things at that level, but eventually it became okay, this is a backpack for that kid, or a diaper bag for that kid, and t shirts for that kid, and a t shirt for one of the parents. The other half of that went into the OSF. So the money came in new registration, and all of the waiting list fees went into the OSF. Every time somebody paid a waiting list fee, and I collected a lot of waiting list fees over the course of my career, because if somebody was a good candidate when they came on a tour, I worked really hard to get them on the waiting list.

Carrie 00:09:58  if they were pregnant or they were happy where they were now, but they were looking for something when their kid turned three, I was like, well, the only way we will have a spot for you is if you're on the waiting list. We almost never enroll straight into our three year old program, yada yada, yada. So all of the waitlist money went into that account.

Kate 00:10:17  Wow. Okay, so but that's that's I mean, if, if I'm needing to, to, to earn $1 million, that's a lot of wait list carry. Is that the only thing I'm supposed to be doing?

Carrie 00:10:28  No, but that's where I started. So what were some of the other things that we have talked about or we've done or had programs we've worked with done?

Kate 00:10:38  Well, I think one of the things, one of the ideas I had while we were talking is depending on how you handle late fees, whether it's they show up late or they pay late again. These are things that are probably not currently in your budget.

Kate 00:10:53  So one way to think about it is all of the income that comes in that's not already allocated in your income budget. So if somebody if you charge somebody a dollar a minute for every time they're late now some programs that money goes directly straight to the teacher. Not every program operates that way. other folks, if you don't pay it on the first, you have until the third, but the second and third, there's a late fee, maybe those late fees get put into that. OSF. So just a way to think about it.

Carrie 00:11:27  It's late pickup fee, and you've got the $1 or the $5 a minute after the grace period. My suggestion just to build goodwill with your staff is that you at least split it 5050. But, but I've known programs where the staff were actually encouraging people to come in late so that they got extra money. So know your staff. when it comes to that. But okay, so miscellaneous fees. So if you're charging a field trip fee and that field trip fee just covers the expense of the field trip, then that doesn't go in the OSF account.

Carrie 00:12:05  But the you paid your tuition late and it's annoying me fee that can go into the OSF.

Kate 00:12:12  The Pia fee.

Carrie 00:12:13  The pain and the pursuit fee. so another way that I've known programs to do it is to go, okay, our functional, you know, our baseline this room has to have 14 kids or else, you know we're kind of freaking out. So 14 is the good number in this classroom. So kids 15 and 16 go in the OSF fund and then kids 17 and 18 go into the fun fund. So parties, fun activities for the staff, that kind of thing. So that's another way we've seen it funded. Do you want to talk about.

Kate 00:12:56  Sure. There's so there's absolutely. So there's different ways and different needs in your community. So if your community maybe has a need, maybe you haven't thought about it for part time care. So part time care, you're already paying for the staff. You're already paying for the room. So having children come Monday, Wednesday, Friday or Tuesday, Wednesday, Thursday or Tuesday, Thursday, whatever is going to be the least disruptive to the kids in your program and to your staff.

Kate 00:13:30  So if you know you've got staff that have a tendency to call off on Tuesday, on Mondays or Fridays, then maybe those aren't the days you add some part time kids. Maybe you just add part time kids Tuesday, Wednesday or Tuesday? Wednesday, Thursday, all of that part time care that doesn't require additional staff. All of that goes into the OSF. All of it. So not you know, it could be it's not even per classroom. It's just all that automatically goes over there. And you know what's really great, Carrie, is when you have a bookkeeper or somebody external who's kind of managing your finances, you can tell them this and they will just do it. So when you look at your bank account, you're not really seeing that difference. I know as an owner, as a person who earns money, as a person who spends money. and I know other people in my, my, my, my circle that if they see that money in the bank account, they think that means they can spend it.

Kate 00:14:30  And so sometimes you have to move that money immediately. And so this might be one of those situations if you're one of those folks. and it's okay to be honest with yourself if you're just somebody that you're like, oh, look, I got an extra ten grand in here. We're going to have a party and we'll take everybody out and we're going to have a big old party. but if really that 10,000 was meant to be part of your OSF, do yourself a favor and tell somebody to move that money. Even if you set that up with the bank. Because did you know that banks will do that? They do. That's that's how that whole Christmas accounts used to start. a lot of savings accounts are funded that way where they just automatically move money, the first of every month or every other week, however you get paid.

Carrie 00:15:15  Yeah. Another thing is maybe dropping care. So you're like, okay, this room is at 16, kids. This is how many kids there are. We only take 16 kids in this room.

Carrie 00:15:27  Okay, well, Johnny is out for a week visiting grandma. That means I can put somebody else in Johnny's spot that week. And so having drop in care for that week that Johnny's out of town. You've already been paid by Johnny's family for that week. And so this is basically we're doubling up on Giannis spot. Somebody else is paying us for Giannis spot. So maybe it's a family that is looking to buy or rent housing in your area. And all of the local realtors know that if they call you you might have free child care or discounted child care for that family. I like discounted better than free. And so the parents can drop that kid off for $40 for the day. And okay, that's not going to get me to $1 million really quickly. But I wasn't counting on that $40 for those five days that the parents are house hunting. So I've got 200 bucks that I get to put into the OSF. And if I do that ten times, I've got $2,000, right. So having different ways to have drop ins that aren't super disruptive.

Carrie 00:16:41  So when we've got kids out sick, when we've got kids on vacation, you can have drop ins, go into those spots. Now, if you're having hand, foot and mouth disease, go through your program or something else that's really contagious or virulent. Maybe we want the numbers down so that fewer people are going to get sick. But, you know, just keep that in mind of having dropping care where it's just I'm filling a spot for somebody who's out sick or out on vacation.

Kate 00:17:11  Well, Carrie, you know, one of my favorites is no cost electives. So we all know those families that pick that four year old up at 5:00 and then take them to soccer and piano and to dance and to all these different electives, or extracurricular activities. And they're paying a lot of money where you could do some of that at your program, depending on your staff and your staff's background. So you could have some of those extras. You could have them as incentives or freebies for reasons to enroll in your program, or you could even have them after hours.

Carrie 00:17:55  Fill up my bank account. How's that filling up my bank account?

Kate 00:17:59  Well, if I'm empty and I don't have a waitlist, it puts butts in the seats.

Carrie 00:18:04  Okay, well, so I'm going to take it the other route and say it's a no transportation electives. So both of those are possibilities. So you can be like, hey, you can pick your kids up to take them to karate class, or you can sign them up for karate class here. It's the same cost, and you don't have to drive your kid anywhere.

Kate 00:18:26  Well, and what's great is if that karate class is being taught by one of your staff that you already had in the building.

Carrie 00:18:33  Absolutely. Or martial arts or karate is martial arts or gymnastics or French or Suzuki violin or whatever. The thing is, that is popular art classes.

Kate 00:18:46  Did you just say yoga classes?

Carrie 00:18:48  Because what I heard was orange classes.

Kate 00:18:50  Art, art.

Carrie 00:18:52  Okay. Art classes. Right? so that's another way to bring in a little bit of revenue.

Carrie 00:18:59  But I'm going to talk about two kind of controversial ones. One is shifting the way your parents pay for their enrollment and having them select what hours of care they want to have their kid there. So they're telling you they're going to drop off at eight and they're going to pick up at four. Cool. I can now have a drop in. I can do one of two things I can have dropping care from 4 to 6 for that child for that spot. Or I can reduce my staffing because I have seven kids who are leaving at 4:00. Okay. So either I can use it as a revenue or I can use it as a savings. So this is yes or both. This is the wave of the future. So if you are trying to figure out how do those big giant franchise programs run, this is one of the ways that they run. And this is something that is coming more and more to more programs.

Kate 00:20:02  But but is this really the wave of the future? Because I'm feeling a little back to the future, Carrie, like I seem to recall another program.

Kate 00:20:10  I know that in the 90s kind of operated this way.

Carrie 00:20:14  Oh, hush. Everything old is new again. So yes, this is not a brand new thing, but it is so much easier now. We used to have to do this with giant whiteboards and it it could become quite cumbersome. But now the same software that you use to schedule your staff, where you go, you input everybody's availability and then it just spits out a schedule. You can do the same thing inputting all the kids schedules, and it'll spit out who, how many are going to be there at each time. And you can end up it's called over enrolling. So you're licensed for 150, but you have 178 children enrolled. You just only have 150 at a time because you have some kids who are sharing a space, but they're not. They're both paying full time rates, or they're both paying. They're paying different part time rates or whatever.

Kate 00:21:18  Well, I mean, it's very easy, especially if you're doing, you know, health care because health care operates on kind of a different schedule than the rest of the world.

Kate 00:21:25  Right? They operate on 7 to 3, 3 to 11, 11 to 7. So if you've got kids that are coming in from seven to 3 or 330 and then you have school agers that come in. I mean, like, that's perfect, right? Like it really does maximize your license and your enrollment capabilities.

Carrie 00:21:45  So yeah. And that happens a lot or it doesn't happen a lot, but it should happen a lot that you have kids that are there for, what we might think of as part time hours or Mothers Day out hours. They're leaving at 2 or 3:00. And the number of programs that don't then have after schoolers come in and take those spots hurts my head, because you're paying rent on that building 24 over seven. And why are we not maximizing it? okay, so you.

Kate 00:22:16  Got.

Carrie 00:22:17  Kids, part time kids, and after school kids all together.

Kate 00:22:23  Okay. You just said something, and I know it's where you were going, but I'm going to bring up the first part first.

Kate 00:22:29  So you're already paying for this building. You aren't paying for this building 40 hours a week. So what are you doing the rest of the week? So take a look at your weekend use. Do you have the ability and are you throwing birthday parties? If not, ask yourself why. Okay, as a parent who would have loved to have more opportunities for that so that I didn't have to clean my house and clean up afterwards? Great opportunities. we did do that with lots of different organizations and, you know, have some fun with what you do with your building on the weekends. A great opportunity to sublease, find partner organizations as well. And I know, Carrie, you're itching. You're itching hard.

Carrie 00:23:15  I'm going to piggyback on that and go renting your space out to community organizations that want to have, you know, a, you know, I don't know, Polynesian American Festival. And they need a location. Well, you've got all of this ground, you've got your playground, you've got plenty of space.

Carrie 00:23:33  You've got physical space inside the building, renting it out to community organisation.

Kate 00:23:38  Rent it out to food trucks, and you could have little food truck parties, especially if they were kid friendly food trucks. Sorry, had to go.

Carrie 00:23:46  Their parking lot could and should be making money on the evenings and weekends if you want to. Here's the other one that I think is something we really need to talk about, which is the nontraditional hours. So the hours after 6 p.m. and before 7 a.m., those nontraditional hours and of course, weekends, we need to talk about it because we have a lot of families who need care during those times. Because if you work at the grocery store, there's a good chance you don't every day have a shift that starts at seven and ends at six or something in between those If you work at the grocery store, there are times they need you there until nine. There are times that you're an overnight stalker, not the the creepy kind. Putting cereal on the shelf kind, right? you've got hospitals and other medical care like Kate was talking about nursing homes, other types of facilities, and the people who work there need child care.

Carrie 00:24:57  We've got people. People have been driving Kate and I in their Ubers at 4 a.m.. Who's taking care of their kids when they're driving us to the airport at 4 a.m.? By the way, Kate, stop booking us at 4 a.m. anyway, so there are lots of different reasons why people need care at these nontraditional times. They might be working a grocery store job or other retail job. Kate's number two son works a stocking job where he takes stuff off of a big truck and he sorts it and puts it in bins and labels it and stuff. He thinks it's great. He only has to talk to like three people all day. But there are so many jobs. We have it in our head that everybody works from sunrise to sunset. But that is not true. And it never has been true. But it used to be that people had enough of a social safety net that they knew their next door neighbor really well, and they could take their kid asleep over to the next door neighbor's house, and their child would sleep on a sofa.

Carrie 00:26:11  Almost nobody does that anymore. So if that parent is a single parent or the parents have overlapping schedules, where are those children being cared for? And the answer is sometimes they're being left at home by themselves. And that's not good for anybody. And so we need to look at what are the non-traditional care needs in your community. And you don't have to know the answer. You have to know who to talk to to find out the answer. And my first suggestion would be to talk to your local chamber of commerce, because they know an awful lot about what's happening in your community. from an employer point of view. Yeah.

Kate 00:26:58  And so not only your employers, but just the, the community make up. Right. So, you know, how many people know their neighbor, how many people are single, how many people are working two jobs? And that's the other thing. Are those folks working two jobs? And so the one kind of thing that we haven't talked about, and I'm just going to plant the seed because it really could be its own episode is sick care.

Kate 00:27:19  every state handles sick care. Slightly different as far as what you have to do to make a space available and different and, you know, basically, truly a safe place for not only those children or that child, but also the other children in the building. So, yeah, there are programs.

Carrie 00:27:39  A lot of times it needs to be a separate building or at least a separate ventilation system.

Kate 00:27:44  It's an isolation issue. So I'm not really like I said, it's a whole other thing. But if you happen to have medical professionals in your circle, so either spouses, maybe even some of your staff are actually registered nurses. and the most successful program I've seen of this is actually run by two registered nurses. And that's all they do is sick care. Now their rates are crazy. But for a lot of families losing a job or paying a crazy amount of money for one day, they're going to pay that crazy amount of money for one day because they want to keep their job.

Carrie 00:28:23  And if you have a place with separate ventilation, You can have that.

Carrie 00:28:29  And again, depends on your state. But that's what is my frame of reference because that's what my state requires. It doesn't have to be someone you have on staff full time, because you can pay a visiting nurse to come give that child medication three times a day, because you don't want to be in charge of giving medication to a sick kid. But you can go, okay, every eight hours, I need you to come by and give this kid Motrin, and you can pay the visiting nurse to do that. And yes, you're paying through the nose for it, but it is. You can absolutely absorb that in the cost of what you charge, because a lot of those people who do that job are like my grandmother was. She was a theoretically retired nurse who did not let her license go until she broke her hip, and she just wanted a reason to leave the house occasionally. So she would just go and, you know, she she medicated people in her community. That's what she did.

Kate 00:29:32  It.

Carrie 00:29:33  With the ages of like 65 and 80. She just walked around and just passed out medication.

Kate 00:29:40  Hopefully we've given you some ideas on how to fund your your businesses. OSF if you are not currently having an OSF for yourself, go do that as a director. As an owner, you can fund your own personal OSF by training, training other staff and other programs. You can write a book. You can do a variety of things that are your own personal second, third, fourth, fifth revenue stream. Do not let your child care center be your only revenue stream, because again, you need to have your own six month personal OSF. So on that carry, I think we have exceeded our traditional, podcast time limit. And so with that, what would you like to tell everybody?

Carrie 00:30:28  If you learn something from this show, please share it with somebody who needs to know. That could be your partner, that could be your business owner, it could be your board. Share it with someone else who needs to know.

Carrie 00:30:40  Because I know there were actionable things in this episode, and you need to be sharing it with other people in your team and in your life, and then go over to your podcast player of choice and write a review. And if we can figure out how, we will respond back to you and we will talk to you next week, and hopefully we won't hurt your brain quite as much as we probably did this week. All right. See you soon. Bye.

Marie 00:31:08  Thank you for listening to Child care conversations with Kate and Carrie. Want to learn more? Check out our website at Texas Director. Org and if you've learned anything today, leave us a comment below and share the show.