The Budget System Every Childcare Center Should Be Using

Today I’m going to talk about how to create a budget for your childcare center.

If you set up this system, you will finally have the financial clarity you’ve been missing for years.

Most childcare owners aren’t struggling because they're “bad with money.” They’re struggling because their budget is scattered across 60 different line items and five different tools.

Let’s build a budget system to help you maintain a profitable childcare business.

Profit doesn’t happen in chaos. It happens from a proper purpose and plan.

Introducing the Childcare Cashflow Compass™

The budget system that we’re going to set up today is what’s called the “Childcare Cashflow Compass,” a simple, repeatable, owner-friendly budgeting system.

The benefits of the Childcare Cashflow Compass are:

• It organizes every expense into four simple categories

• It reveals hidden profit leaks instantly.

• You’ll easily know what money is coming in and out, weekly.

• You’ll stop making emotional decisions, and make strategic ones.

• Your center will be financially stable.

  
  

How to apply the Childcare Cashflow Compass in 7 Steps

1. Collect your financial information

2. Categorize all spending into the 4 key directions

3. Calculate how your center stacks up

4. Connect overspending to specific areas of focus

5. Correct your cash leaks

6. Create your weekly cashflow rhythm 

7. Confirm your progress regularly

Step 1: Collect your financial information

Before the Compass can guide you, you need the map.

Collect the following information for your childcare center:

• Your most recent income statement/profit & loss statement (ask your accountant)

• Payroll reports

• Tuition totals (weekly or monthly)

• Subsidy timelines

• Major recurring expenses

• Bank statements for accuracy

Even if you can’t gather it all right now, the Income Statement alone will be enough for now. 

As our example, today, I’m going to use Xero Accounting Software’s demo company, but you’ll want to use your childcare center’s real data. This gives you the raw data the Cashflow Compass will organize.

I like to export the income statement from Xero to PDF to make the next step easier.

Step 2: Categorize all spending into the 4 key directions

Go line by line and categorize all spending into the 4P’s:

1. Payroll – Staff wages, payroll taxes, employee benefits, training & professional development, onboarding, recruiting, etc.

2. Property – Rent/mortgage, utilities, repairs, janitorial, insurance

3. Program – Food, supplies, events, curriculum, advertising, classroom purchases

4. Process – Admin tools, accounting, legal, subscriptions, travel

   
   

Use highlighters or color-coding for each category. I’ve included a demo example below.

We will use these 4 directions/categories for your childcare center budget going forward, and they all naturally tie to what’s happening financially in every early childhood education program.

Step 3: Calculate & Compare how your center stacks up

For each of the 4P’s, do the following:

Category Total ÷ Total Monthly Revenue = % of Revenue

For example:

Our Payroll category has two items (payroll taxes + wages) which when combined total $19,222.44. That is our category total. We then divide that by the total income of $34,559.78.

• Payroll     $19,222.44

• Income = $34,559.78 = .55 

That .55 tell us our payroll percentage is 55%

Repeat that for each of the 4P’s Payroll, Property, Program, and Process, to calculate where your center is financially so far.

• Property   $5840.52

• Income = $34,559.78 = .16 

That .16 tell us our property percentage is 16%

• Program   $13,633.51

• Income = $34,559.78 = .39 

That .39 tell us our program percentage is 39%

• Process   $2549.06

• Income = $34,559.78 = .07

That .07 tell us our process percentage is 7%

Next, Compare your numbers to the Childcare Compass standard. Ideally your center will fall into these ranges.

• Payroll: 50–55% , our example landed at 55% (within range)

• Property: 22–25%, our example landed at 16% (within range)

• Program: 12–15%, our example landed at 39% (out of range)

• Process: 3–5%, our example landed at 7% (out of range)

  
  

This tells you exactly which category is off, and by how much. Our example shows us that there’s room for improvement in the Program and Process categories.

These percentage ranges aren’t just random. They align closely with national childcare spending trends. According to the 2024 Hinge Advisors Childcare Cost Survey, staffing, occupancy, program supplies, and admin costs make up the majority of expenses for centers across the country.

You can explore the full survey here: https://hingeadvisors.com/blog/2024-childcare-staff-costs-survey

Step 4: Connect overspending to specific areas of focus

Once the numbers are clear, examine why a category is high:

• Is payroll high due to scheduling or overtime?

• Are property costs high because of a one-off repair, or a vendor you can renegotiate?

• Is program spending creeping from Amazon, Instacart, field trips, or curriculum?

• Are process costs bloated with duplicate subscriptions or unused tools?

In our example, Program costs are very far out of range. We can see from the numbers that Advertising costs are over $10,000 but income is only $30,000. This would give us insight that our marketing efforts are not increasing enrollment enough and we need to make some changes in this area.

Can you see it now, this is where the “aha!” moments happen.

Step 5: Correct your cash leaks

Bring each category back into alignment by correcting:

• Staffing schedules

• Vendor contracts

• Food/grocery processes

• Software subscriptions

• Curriculum purchasing routines

• Advertising budgets

• Janitorial/catering outsourcing decisions

Now that you know your numbers, this keeps decisions strategic, not emotional. 

For example, while you may love the work you’ve done for your advertising campaign to get new children enrolled, the numbers show you that you aren’t currently getting a return on your investment.

Step 6: Create your weekly cashflow rhythm

This is where your Compass becomes a habit.

Each week:

• Review expected income (tuition + subsidy), directly from your Childcare CRM like Brightwheel, Procare, etc.

• Review upcoming expenses, what recurring bills do you have coming up this week?

• Confirm payroll timing

• Check remaining cash

• Adjust purchases or staff scheduling as needed

This prevents end-of-month surprises and builds financial confidence.

Step 7: Confirm your progress regularly

Every month:

• Review the results of your 4P percentages

• Make necessary changes

• Confirm progress toward the childcare industry standard

Every quarter:

• Adjust tuition as needed, if your rates are too low for your geographic area

• Revisit staffing levels, and pay rates

• Reevaluate vendor contracts

• Assess profit margin and cash reserves

This maintains stability long-term.

By using this system, the childcare center owners I work with stop operating in chaos.

Instead, they build predictability and peace into their finances.

Apply to Work With Little Ledgers, I can help you build your own Cashflow Compass budgeting system.

That’s it for today. Hope it was helpful!