Telling Parents Where Your Money Goes

Some parents may think you make a lot more money than you really do.

They look at what they pay you each week, multiply it by the number of children in your program and falsely conclude that you make a lot of money!

For example, if you charge $175 per week for a full-time child and care for six children, your income is $54,600 a year ($175 x 6 x 52 weeks). If you receive the lower rate from the Food Program, that’s an extra $3,400 per year, or a total of $58,000.

Parents, however, don’t realize all of the expenses you have to run your family child care business.

One way to give parents a more accurate idea of how much money you make is to create a pie chart that shows where your income goes. Your pie chart will show how much you have left over for yourself, after your business expenses.

You can use the expense categories from your last year’s tax return (IRS Schedule C) to create your pie chart of expenses. Your expense categories could include: food ($7,000), supplies ($4,000), car expenses ($1,500, toys ($1,000), business liability insurance ($600), office expenses ($1,000), household items ($3,000), activity expenses ($2,500), employees $5,000), and house expenses (property tax, mortgage interest, house insurance, utilities, house repairs, and house depreciation – $8,000).

Your list of expense categories may be different. You may want to lump together categories so the total number of your categories is less than ten, to make your pie chart easier to read. You may want to leave out any depreciation expenses after the first year from Form 4562, as these don’t represent actual expenses in the current year.

Here’s an example of what your pie chart might look like using the above numbers:

Don’t share the dollar amounts in your pie chart. Instead, show the percentage of total expense each category represents. Using the income from above ($58,000), the chart shows that this provider spent 67% of her income on expenses, leaving her a profit of 33% of her total income, or $19,400.

So, you could tell parents, “For every $100 you pay me, I keep $33 after paying my business expenses.”

If you work eleven hours a day, five days a week, caring for children, and work an extra ten hours a week doing other business activities (cleaning, activity preparation, etc.), that’s a total of sixty-five hours a week. With a profit of $19,400, that represents an hourly wage of $5.74 ($19,400 divided by 65 hours, divided by 52 weeks).

So, you could tell parents, “Do you think I should be earning minimum wage ($7.25 federal minimum wage) for my work? If so, that means I’ll have to raise my rates to $186 per week to reach that goal ($10 an hour x 65 hours x 52 weeks = $24,505 + $33,600 in business expenses divided by six children = $186 per week, per child).”

Is this helpful?

Tom Copeland – www.tomcopelandblog.com

Image credit: http://freepsdfiles.net/3d-renders/free-pie-chart-psd-template


Categories: Money Management & Retirement

7 replies

  1. What a great article. I hear people comment about how much money we make. They do say, “boy do you have it good”. Ha, after reading how much below minimum wage I make, it is very depressing.
    I get tired of hearing how expensive day care rates are.
    Thank you, Tom, for sharing your knowledge. I find your articles very helpful.

  2. Two of my larger expenses are taxes and health insurance. Those payments come out of my gross income too. Would you include those?

    • You can put whatever you want in your pie chart. Yes, you could include taxes. I wouldn’t include health insurance because that’s a personal, not a business expense, but you can do what you want.

  3. THANK YOU FOR POSTING THIS!! And at the perfect time. I am in the process of raising my rates and was trying to figure out how to tell parents why I need a raise. Creating my pie chart asap!!

  4. Yes, Tom, Very helpful. Good exercise for business trainings as well as parent education.

    The only thing I would suggest is to change “profit” to “income.” That looks like a big profit, but it’s not a big income.

  5. In many countries, health care is considered a business expense.

    • And most people (unless they are self-employed) do not understand what a large percentage of income goes to health insurance if your spouse is also self-employed or if you are single.

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