TIME FOR A CHECK UP

Since we have completed half of 1999, this is a good time to take a look at your daycare income and expenses to determine if you have generated a profit or a loss. To create your business profit and loss report (sometimes called an Income Statement), you need to refer to your records regarding the total amount of funds you have received from providing child care, from the food program, or in the form of interest earned from your business bank account. This dollar amount is called your Gross Income and would be recorded in the first section of your report. Next, you will need to account for all of your direct and indirect expenses. Direct expenses would include purchases you have made by cash or check to obtain toys, books, supplies, or food which are 100% business expenses.

Indirect expenses would include the business percent of your electric bill, water bill, property tax, or mortgage interest. If you have chosen the IRS Adjusted Mileage Allowance method, be sure to include your mileage expense for the year as well. Your Total Expenses would be recorded in the second section of your report.

When you deduct your expenses from your income, you are left with your gross profit or loss recorded on the bottom line. This method of reporting does not allow for depreciation, but it does provide you with an estimate of your financial picture to date and enables you to project your total profit or loss for the year. With this projection, you will be able to adjust your quarterly installment payments to the IRS in hopes of avoiding any penalty for underpayment of estimated taxes.

To arrive at your projected 1999 profit and loss report, you need to utilize income and expenses related only to the period of January 1 through June 30. Once this report has been finalized and total gross profit/loss determined, you simply double your income and double your expenses to arrive at your projected 1999 number.

Of course, we are assuming that the level of both income and expenses during the second half of the year will remain consistent with the first half of the year. It is wise to make adjustments if you know in advance that you will be accepting three new full time children in August (increase income) or that you will be purchasing the entire line of Little Tyke© toys in October (increase expenses). This report is a valuable management tool which will enable you to make more informed business decisions. If your projection reveals a loss, you need to do some investigation. Are you charging enough for your child care services?

Are you spending too much purchasing toys? On the other hand, if you are looking at a projected profit, you may want to consider ways to reduce that taxable income. This topic will be discussed in more detail in my next article on Childfun.

Below you will find a sample profit and loss report for you to use as a guide.

Brigitte A. Thompson, President (WAHM of Sarah 1/93 and Jacob 4/97) DATAMASTER, LLC~

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About the Author:
All articles ©Copyright 1999 Brigitte A. Thompson Brigitte is the President of DATAMASTER, LLC and has been providing accounting, bookkeeping, income tax and payroll services since 1992. She has also operated a home daycare for years and has written a book for providers :
The Home Daycare Complete Record-keeping System