Opening Up Of a Day Care Center - Essay Example

 FEASIBILITY STUDY OPENING UP OF A DAY CARE CENTER TABLE OF CONTENTS a. Informative Analysis 3 b. General market characteristics 4 Business name 4 Operation 4 Pricing guidelines 5 Essential equipments 5 Training 5 Personnel 5 Type of business 6 Financing 6 Marketing and advertising methods 7 c. Financial statements 7 Proforma income statement 7 Cash Flow 8 Balance sheet 8 d. Ratios 9 Return on investment 9 Payback period 9 Break-even analysis 10 e. Analysis 11 Weakness 11 Opportunity 11 f. Scenarios 11 g. Social Desirability of the Project 12 Works Cited 13 a. informative analysis With more and more moms joining full time employment, a great number of children are in need of day care. The need for day care service is great and will continue to be so for some time. Figure 1 shows the increasing rate of labor force participation of mothers from 1975 to 2007.Most home based day care businesses take care for 4 to 6 children who may come in as full time, part-time, or drop ins. This has come to be a convenient arrangement for working mothers. (NACCRA, 2011). Accordingly, NACCRA stated that “Early childhood is the critical and most vulnerable time for child’s development”. Some businesses specify the ages of children they can handle. If both parents are working, who will take care of the children? Child care center is valuable instrument for child’s development because they learn social skills and gain appreciation for education at an early age. According to research, brains of children grow faster during the first five years of their life. These facts dramatize the need for a day care center to answer the growing needs of parents and children. b. General market characteristics As the number of parents entering the workforce grows, the amount available and quality child care facilities in many parts of USA becomes inadequate. In particular, this day care center is proposed to be a home based business and will take care of 4 to 10 children who will come on a whole day basis and another 10 toddlers who will also come as drop ins. A portion of our house will be remodeled for the day care business. It will be a modest start of operation since my capital is limited. Business name. The name for the business is St. Pancras Day Care Center. St. Pancras is the patron saint for children pursuant to the Catholic beliefs that there should be one for every profession. Operation The center is open from 6:00 am. to 8:00 pm. for 365 days a year. This time coincides with business hours of employment. Operation will be whole year round, because of parent’s time requirement. Parents can drop their children before going to work, and then pick them up in the afternoon. The day care center can also accept half day caring to accommodate the schedule of busy parents. Come-ons for children will be the children inspired decorations of the nursery, or maybe children’s toys or books. A contract will be issued that covers the guidelines of the school so parents will understand responsibility of the school and its limitations. Picture above is a sample of a day care center that is proposed. Pricing guidelines Pricing guideline is $100-200 week per child, $30-40 per day for infant care, and $20,, and $30 for full day. (Huff, Pricilla, 1993, pp. 102-103) Since this guideline was done in 1993, pricing will necessarily adjust for costs of inflation, say, 10%. NACCRA suggests pricing of $90 to $ 100 per child per week. Payment is weekly, for students enrolled on a weekly basis, and daily for drop ins. Essential equipments Learning toys, cribs, high chairs, playpens, first aid supplies, craft supplies, business telephone, good furniture, air-conditioned rooms, a computer, and a playground. Clean facilities will be provided all the time. Training/experience required Courses in Child care Must have an experience working with children from infancy to six years, e.g. caretaker Must love children and enjoy teaching and working with children Must be able to work full day No criminal record Personnel Ideally, a day care center should have a teacher, an assistant, a nurse, or a kitchen staff. Government rules, as in Idaho, requires l day care worker per 12 children. But since this is proposed to be a small home based day care center, only two day care workers will be hired. As the proprietor, other works will be assigned to me, such as the administrative work, advertising, and communicating with parents. As a proprietor, I will take full responsibility of the business and attend to its day to day operations. Type of business Business will be registered as a sole entrepreneur as it will start on a small scale. An advantage with this type of business structure is that owners make extra effort to run the business efficiently to avoid losses. In this type of business, owner is more concerned on good customer relations, particularly to parents of the children. The business is easier to register and does not need too many papers for reporting, and easier to manage. All the profit goes to owner, but losses will also be his sole responsibility. Financing Start up costs will come from personal savings, line of credit on credit card, government funds and bank loans. Some state provides grants and sponsor children of low income families who attend day care centers. Huff, Priscilla, 1995, estimated the start up cost to be around $3000 to $10,000 depending on the equipment to be used. For simplicity, I will propose $25,000 as my beginning capital. Some states provide grants to day care centers as incentives. According to Heyd, average grant of the government is $1,000 to $5,000, and is allotted to support operating costs. Breakdown of start up costs is: Personal savings - $5,000.00 Loans – Credit Cards 10,000.00 Bank loans 10,000.00 Government grant 1,000.00 Total $26,000.00 A one year short term loan of $10,000 will be obtained from the bank at 6% and a credit card loan of $10,000 at 8% p.a. Marketing and advertising methods. Word of mouth referral is a convincing story and is one way of driving parents to the center. We will also use internet for easy access and reference. Announcement thru Flyers could also be distributed in community centers, churches, markets, and other places where people go. C. Computations are shown below: PROFORMA INCOME STATEMENT, JANUARY TO DECEMBER __ INCOME Per year Tuition fees of 10 students @$100 per week, 48 wks $48,000.00 Tuition fees of 10 toddlers, @$30/day, 360 days 108,000.00 PROJECTED INCOME 156,000.00 PROJECTED EXPENSES Equipment $15,000.00 Remodeling $10,000.00 COST OF SALES $25,000.00 LESS Salaries of 2 day care assistants $650 ea. per week ($1300 per week x 48 wks) 54,600.00 Allowance of administrator (owner) 12,000.00 Total 66,600.00 Other expenses Electricity and water 3,000.00 Telephone 1,200.00 Materials 1,000.00 Travelling 1,200.00 Misc. (for flyers and promotional items) 800.00 Total 7,200.00 Net profit before loans, interests and taxes 57,200.00 CASH FLOW STATEMENT, ONE YEAR PERIOD CASH INFLOW TUITION FEES 156,000.00 LOANS 20,000.00 PERSONAL SAVINGS 5,000.00 GOVERNMENT GRANT 1,000.00 TOTAL CASH INFLOW 182,000.00 CASH OUTFLOW REMODELLING 10,000.00 Equipment 15,0000.00 Salaries 54,600.00 Allowances 12,000.00 Other expenses 7,200.00 Total cash outflow 98,800.00 Cash balance 83,200.00 Proforma balance sheet Non current assets Property and equipment 25,000.00 Current Assets Cash in bank 83,200.00 TOTAL ASSETS 108,200.00 CURRENT LIABILITIES Accounts payable 25,000.00 GRANT 1,000.00 NETWORTH CAPITAL 25,000.00 ACCUM. PROFIT 57,200.00 TOTAL LIABILITIES AND NETWORTH 108,200.00 D. The ratios for this business are computed as follows: 1. Return on investment is used to evaluate the efficiency of the investment and is computed as gain from investment divided by cost of investment that gives a ratio result (Investopedia) The return on investment formula: ROI = 57200 – 25,000 / 25,000 ROI = 1.288% A return on investment is predicted at 1.288% for the first year of operation that means it is a viable project. 2. PAYBACK PERIOD - The payback period is calculated by counting the number of years it will take to recover the cash invested in a project. (Accounting for Management). The day care is expected to generate an income of $57,200 with an investment of 25,000. Therefore, Initial investment = $25,000. Periodic cash flow = (total cash inflow / 12 months) = $182,000 / 12 months = $15166.67 monthly cash flow Payback period = 25,000/ 15,166.67 = 1.64 If all projections of enrollment fall into place, payback period is 1.6 mos. The payback period is used only to determine how long it will take to recover the cost of investment. This means debts can be paid within this period. BREAK EVEN ANALYSIS. This calculation simply means a point of tuition fee (sales) where there is neither profit nor loss in the business. It is a position where variable costs and fixed costs are equal to sales (Accounting for Management) FORMULA FOR BREAK EVEN COST BEC = FIXED COST / PRICE – VAR. COST = $91,600 /44.285 -210 = $91600/44.285 =2068.42 BEV=2068.42- 210 =1858.42 Fixed costs Equipment $15,000.00 Remodeling 10,000.00 Salaries 54,600.00 Allowances 12,000.00 TOTAL $91,600.OO Variable costs Electricity and water 3,000.00 Telephone 1,200.00 Materials 1,000.00 Travelling 1,200.00 Misc. 800.00 TOTAL 7200.00 PRICE: TUITION FEE $100/WEEK & $30/DAY UNIT SELLING PRICE 44.285 Calculate the variable cost per unit by dividing the total variable cost by the number of units. VCU =$7200 / 20 (NO. OF STUDENTS) VCU = $210 $100/WEEK DIVIDED INTO 7 DAYS = 14.28 + $30 DAY (for toddlers) = =$44.28 e. Analysis Based on the projections, the establishment of the day care center is a viable proposition. On the first year of operations, cash flow from operations will be able to shoulder all the monthly expenses. At the end of the year, there is an available cash to pay maturing obligations and enough profit for the owner. Proforma financial statements have been prepared only for one year inasmuch as the operation show good signs based on assumptions. Weakness. Harsh climate will cause income to vary. Status of income of parents is also a barrier. Economic environment such as unemployment is a cause for income decline. Opportunity. The rising numbers of employed parents is a ready market. The government gives grant to low income families to support child care. f. Scenarios If sales go up, meaning there will be a need for expansion, business may either rent another space to accommodate the growing numbers of students since based from projections it has available cash to finance expansion. Opportunity of winning lottery will expand capital and there will be no need to borrow. Another scenario that is also related to day care is devoting it to special health care needs of children 6-17. Figure below show is a great need for specialized day care center. The financial requirements, as well education facilities for this type of center, require another study. But certainly, this is an opportunity worth looking for. Source: NACCRA, 2011 In a worst case scenario, where stocks are gutted by fire or bad debts, the business will still continue as there are enough cash balance for a fall back position. In either case, the business can get another loan, presuming that the initial loans have been paid. f. Social desirability of the project A study of NACRA 2011 showed inadequacies of child care when it is given to untrained people, like relatives and neighbors. Government realized the importance of child care so much so that they have appropriated funds for poor children due to policy that nobody should be left out and to ensure that families in the community have access to quality, affordable child care. The proposed day care system will provide quality instructions. References Accounting for Management. (n.d.). Payback Period Method for Capital Budgeting Decisions. [Online] Available at http://www.accounting4management.com/pay_back_method_of_capital_budgeting_decisions.htm. [Accessed 12 July 2012] Accounting for Management. (n.d.). Break-even Point Analysis-Definition, Explanation Formula and Calculation. [Online] Available at http://www.accounting4management.com/Break_even_analysis.htm [Accessed 12 July 2012] Huff, P. Y. (1995). 101 Best Home-Based Businesses for Women. Archetype Book Corporation, USA. Investopedia. (n.d.). Definition. Return on Investment. [Online] Available at http://www.investopedia.com/terms/r/returnoninvestment.asp/#axzz20HsujeQ. [Accesses 12 July 2012] NACCRA (National Association of Child Care Resource and Referral Agencies). (October 2011). “Child Care. Like the Military, Is It Time for Shared responsibility?” NACCRA. org. Heid, A. (n.d.). Grants to start a Daycare in Georgia. ehow.com. [Online] Available at http://www.ehow.com/list_7158735_grants-start-daycare-georgia.html. [Accessed 12 July 2012] Read More