Partnership Or Sole Proprietor - Which Is A Better Model For Daycare Centres?

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Are you fretting over whether you should start the daycare centre on your own or with a partner? To make an informed decision, you first need to understand how both business ownerships differ. Whilst both are fairly simple forms of ownership and ideal for small businesses, it has its advantages and disadvantages.

Let’s start with sole proprietorship. It is a very simple model. You just walk into the company registration authority to register your daycare business. The owner and the company are not separate legal entities, which means that you and the daycare centre are considered as one entity for tax and liability purposes. The daycare centre and you are jointly responsible for all debts related to the business.

As for partnerships, there are 2 different types. One is general partnership whilst the other is private limited. Like sole proprietorship, a general partnership is also very easy to set up, simply walk into the company registration authority to register your daycare business. And like in a sole proprietorship, the daycare centre and partners are not separate legal entities. Which means all the partners are responsible for any debts incurred by the daycare centre. For example, if the daycare business incurred a debt of $30,000 and the partners decided to wind up it up due to lack of capital, all the partners are liable to pay off the debt with their own personal assets, unless they choose to declare bankrupt. Unlike in a private limited partnership, the partners and daycare business are considered separate legal entities and are therefore not liable to pay off any debts with their own personal assets. However, unlike a general partnership, it is a little more complicated to set up and will entail depositing and maintaining a certain amount of money in the bank which acts as a guarantee. The plus side is suppliers, because of the forced deposit in the bank, tend to be more inclined to offer private limited companies better credit terms than a general partnership.

There are however a few differences. As a sole proprietor, you are the boss and therefore have the absolute say in the daycare business. It also means that you will need to undertake all the risks, costs and responsibilities by yourself. In a partnership, however, all the risk, cost and responsibilities are shared as all the partners are bosses. Which also means that the running of the daycare business will need to be by general consensus to ensure that all the partners are kept happy.

There is no one best business ownership model as both of them carries with them its own form of risk and returns. Some prefer the freedom of a sole proprietorship whilst others feel more secure in numbers. Even in partnerships, some prefer the simplicity of a general partnership whilst others prefer the security of a private limited partnership. Which form of business ownership you ultimately enter into is highly dependent on your personal risk appetite and resource.

For more information or resources on starting a successful daycare, please visit http://www.setupadaycare.com

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Top Seven Things To Consider When Buying a Start a Daycare Book

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When starting a daycare one of the easiest ways to learn some of the tricks of
the trade is to purchase a book or ebook. A Day Care Program like any of these are
a great place to start. With many to choose from, how do you decide which is best
for you. Below are some of things that you need to consider when selecting a book,
ebook or program. First will be a question that needs considering and then the best
criteria to select from.

1. Who wrote the book? BEST–Written by someone that actually
operated a successful daycare. GOOD-Written by someone who researched
operating a daycare by interviewing people who successfully operated a daycare.
FAIR-Written by a ghost writer with only researching it from the web
and books

2. Does book include information on writing a business plan for a daycare?
BEST-Has examples of business plans included. GOOD-Explains
how to write a business plan and what is needed. FAIR-States that
need a business plan but does not tell how or give examples.

3. Does book review licenses procedures? BEST-Goes in details
on licensing and how to get them and gives information about each State’s procedures.
GOOD-Reviews some information on getting license and links to each
State for more information. FAIR-Only mentions that license is needed
but gives no additional information.

4. Does book review daycare pricing and how to decide on pricing?
BEST-Covers in details how to set pricing and how to determine if your
pricing is comparable to your competitors. Also explains how to determine profitability
based on price verses expenses. GOOD- Explains only to check competitors
to determine pricing. FAIR- Only slightly covers price and does not
give info on how to set price.

5. Does book cover hiring staff and number of staff needed? BEST-Goes
in details on hiring staff to include how to do background checks, references, and
education. Also covers recommended number of staff per number of clients.
GOOD- Only covers hiring staff and recommends background checks, references,
and education. FAIR- Only covers that you may need to hire staff but
does not go into any details.

6. Does book cover the supplies, equipment and safety? BEST-
Gives details on supplies, equipment and safety. GOOD- Gives detail
on supplies and equipment. FAIR- Only cover general supplies needed.

7. Does book cover over forms needed and give examples? BEST-
Covers in details forms need and also provides samples of the forms. GOOD-
Covers forms that are needed but does not give examples. FAIR- Only
discusses that forms will be needed and refers you elsewhere for them.

There are many other areas that you may want to consider as well but these are
the top seven. Some of this information you may not be able to find out without
buying the book. So you may want to find reviews of the books to help make a decision.

J. Wayne Norris is the owner of
http://www.start-a-home-day-care-business.com.
Go to his site for information on starting a daycare and a
review of ebooks on
the subject.

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Parent Hack #1: Secret to Easier Daycare Drop-offs

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The Dreaded Morning Drop-off. In the toddler room at our daycare, Little B. and her Mom were having a tough time in the mornings. Little B. did not want her Mom to leave, and was crying and clinging on to her. After 15 or 20 minutes, one of the teachers would pry little B. away, holding and comforting her while Mom makes her not-so-clean or happy getaway.

After a few mornings like this, I ran into B's Mom in the parking lot. She looked helpless, pregnant with guilt, little B's tears and cries still weighing on her.

"Tough, huh?" I asked. "Yeah, it's gotten pretty bad lately. I don't know what to do."

I felt compelled to reveal my Secret to a Guilt-free, Tears-free Morning Drop-offs. Actually, it's a technique (or Parent Hack, if you will) that we learned at our last daycare.

"You might have her push you out," I suggested. "What do you mean?"

It works like this: A teacher or parent asks the child, "Do you want to push Mommy (or Daddy) out of the room?" during the good-bye portion of the drop-off. The child agrees. Mommy or Daddy turns, faces the door and the child pushes the parent's butt, like a choo-choo train, out the room.

"Yeah, I'll give it try," said B's Mom.

How did it go? When I ran into B's Mom a week later, she was gushing with thanks. Amazing, she said. And I got to witness it in action the next morning, both of them happy and even having added their little tickling twist to the drop-off ritual. No tears, no banshee cries. No guilt in sight.

As a bonus. "Now she even pushes me out of her room at bed time, " said B's Mom.

The next morning, I saw Little N, another one of the kids who's been having a tough time. After 10 min., her mother spontaneously suggested to little N, "Do you want to push me out?" Little N. agreed.

"It's nice to leave her not screaming her head off in the morning," I overheard N's Mom telling B's Mom.

Why it works. It empowers the child. It gives them some control. They decide (sort of) when you leave. They are pushing you out; you're not leaving/abandoning them.

And it's fun. Like playing choo-choo trains.

The Downside.

1. It may not always work. Although I have yet to see it not work.
2. It's a little manipulative.

Yes, but. My instinct says a little manipulation is better than all the tears, cries and the guilt.

Give it a try and let me how it went for you.

J. Lee writes for http://mysearchformeaning-money.blogspot.com/ and http://daddymadeit.blogspot.com/

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Record Keeping for Daycare Centers

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The key to record keeping is to simplify, simplify, simplify. As with any other repetitive task you want to make it as easy as possible so the main goal is achieved. At the end of the chapter I will reprint a copy of what the IRS is providing to its auditors when looking at child care centers. This information will give you some insight.

The end result of keeping accurate records is two-fold. Sometimes we get all caught up in defending against problems with the IRS and tax return preparation and that we forget the purpose of record keeping. We should be using the information from the records to advance our business and allow us to make decisions on how to run the business more effectively.

Good record keeping will allow you to keep track of the health of your business. Again, seek professional help or read as many books as possible to aid you growing your business effectively and keeping it on track. Don’t become overwhelmed with everything in your business and allow this area to be the one that always falls short. Remember the rule – simplify! Get the information you need to make a proper decision and give the government the information they need in the form of tax return or reports.

Lets’ get started.

There are a number of logs that are necessary in the preparation of good records. They are: time, food, auto, and asset. In addition to these logs we need to keep track of income sources: private pay, government pay, grants, and food program. The other sources of funding must also be tracked: bank loans, vehicle loans, and loans from others. The final things that need to be kept track of are the valid expenses of the business.

Lets’ break down each of the above in a little more detail.

Income sources

1. Private pay from parents by child

2. Food Program (USDA)

3. Grants

4. Government Programs

I recommend that you keep track of each source of income separately and then report them separately on your income tax return. Each source can be verified by the IRS so if you report it this way there is no question to its accuracy. All money received should be deposited into a business bank account. This allows you to easily verify the income to the deposits that were made during the year.

Time, Food, and Auto

Many states provide a calendar for the tracking of these figures. In the end we need to know how many hours the day care was in operation to calculate the time space percentage (discussed previously.) Do this daily and weekly, (record on the calendar) to be able to answer all questions at the end of the year on your tax return. If you’re anything like me, you can’t explain what you did last week much less what you did eleven months ago.

In 2004 the IRS made a significant change in the calculation of food expense. Prior to 2004 the only way to track food was to provide receipts of food purchases. This method was always in question to providers on how to determine what was personally eaten food, (non-deductible) and what was consumed by children, (deductible). We now have a new log to keep. You now need to provide the number of breakfast, lunch, dinner, A.M. snack and P.M snack. The IRS provides a rate that is equal to the tier-one food rate for the USDA food program.

This new program eliminates the tracking of food receipts. I still recommend keeping the food receipts to prove that you have spent at least what you are claiming. You are still allowed to keep actual receipts and use those for expense. Just realize that on audit the auditor will do a test of meals served and if your expense is higher than the calculation of meals times rate they will argue to reduce the expense.

The auto log is simply the record of miles driven on a personal vehicle for the pursuit of business. If the vehicle is used 100% for business you may take the actual expenses for that vehicle. If you share the vehicle for personal and business you need to determine the percentage of business that the vehicle was driven. The choice of using actual or mileage method is made in the first year of service. In both methods you will need to keep an accurate mileage log. The total miles driven are also necessary. The other information needed is date, miles driven, and what the business purpose was. This can be recorded on your calendar or a special book specifically for this purpose. Again, if you do it daily, it becomes natural to you and the information is readily accessible for tax time.

Asset Log

Asset Log is defined as: what is in your home that will last longer than one year. There are two types of assets: those you owned before you started operation, and those you purchased after you started operations. These assets can be further broken down into those that are 100% used for business and those that are shared by you personally and the day care. No matter which kind the assets are you need to record information about them.

Owned before operations started

1. Asset Name (ie refrigerator)

2. Location (room from floor Plan)

3. Fair Market Value at date of start of operation

4. How you determined value

5. Asset type

Purchased after operation started

1. Asset Name (ie refrigerator)

2. Location (room from floor plan)

3. Date Purchased

4. Where purchased

5. Asset Type

Based on the above information you will be able to create a depreciation schedule and claim the proper amount of expense. The depreciation schedule will either go directly to the business return or be further reduced by the time space percentage depending on whether it is a shared asset or a total business asset.

Loan List

You will need to keep track of the monies that are entering your business and from where. When you make a loan to the business it needs to be tracked. The bank wants to get their money back when they loan you money and you should want the business to return that money back to you as well. The money you loan to the company should be deposited into your business bank account, and the expenses that the loan was needed for will be recorded in the business checking account.

Many times I will have a provider complain that they are not being treated as a business person and instead are being treated as a baby sitter. Keeping accurate records and acting like a business requires you to have good records. Be sure to keep strict separation between personal expenses and business expenses. By doing this you will be treated as the professional that you are, and will give you piece of mind when tax time or decision time arrives.

Lastly, Direct Expenses

All direct business expenses should be written from your business checkbook. I have found that using a credit card has been very helpful. If you use a credit card use it for business purposes only, and pay the balance monthly, you will be able to track expenses easily. Debt is a burden that will many times destroy a new business. Good record keeping will allow you to better keep track of the monies coming in and going out. You should keep the receipts associated with the expense and organize them by category, not the month. The IRS wants to know the amount of supplies, not January, February, etc. This will allow you to easily assemble the information for the tax return or financial statement purposes.

Whether you decided to use a computer with the many programs that are available for record keeping or not, the overall goal doesn’t change. You need to systematically assemble the information in a way that you can make decisions from, and also comply with the laws of your state and federal government.

I thought it would be helpful to take a look inside what the IRS auditor would be looking for. In 2004 the IRS published an audit guide for child care centers. This publication is used by auditors to get up to speed on a certain industry segment. If you know what they are looking for you can better be prepared when the time comes. It is too late to prepare after you are selected for audit, because the audit will happen between two and three years after the year that they are auditing.

The IRS has given its auditors specific guidance that lets you know what issues the examiners are looking for. This is not an absolute list because the individual auditor can ask for anything they want to look at but this is a great starting point.

From Child Care Providers Audit Techniques Guide

1. Be prepared to discuss the business history including the starting date, a brief description of a typical days activities, and internal controls for income and expenses information

2. If you are taking a deduction for the use of your home, provide a floor plan, blueprint or other significant documents to reflect the square footage of the residence. Provide the escrow and/or closing statement to verify the cost of the property. Mortgage company statements showing the paid property tax renting your home provide substantiation of the expenses and a copy of the rental agreement.

3. Provide copies of Federal Tax Returns for prior and subsequent years, prior Federal and State audit reports, any related returns: partnership, corporation, or employment tax returns and any Forms 1099 filed and/or received.

4. Provide journals, ledgers, records, notebooks used to keep a record of clients and the amount they paid (weekly, monthly, etc)

5. Provide all bank statements, business and personal, for the period beginning _______ and ending _______.

6. If you are participating in the food program, provide copies of the reimbursement statement, name and address of the food sponsor, attendance and meal count record, and time record.

7. Provide copy of any benefit or retirement plan.

8. Provide substantiation in the form of canceled checks, receipts, statements, or invoices for expenses identified for examination.

9. Provide all business licenses, approvals, registrations, and certifications.

When facing an examination by the IRS, it is best to provide the auditor with exactly what they ask for and nothing more. Answer only the questions they specifically ask and avoid offering additional information that they don’t specifically ask for. You don’t want to expand the scope of the audit by offering information that will lead to additional areas of inquiry. Do not go to the inquiry alone and preferable bring your tax advisor to assist you. If the tax advisor has complete knowledge of your return he/she may prefer to complete the audit without you present. This normally avoids the expansion of the audit and allows it to proceed to a conclusion as quickly as possible.

If you take the process of record keeping one step at a time and do one thing every day you will stay on top of the work and benefit from the wealth of knowledge that can be derived from that information.

Christine Groth, business owner, and author of 6-weeks to Instant Daycare Profits Home Study Course. Subscribe to our free 6 part newsletter on how to start a daycare and make over $90,000 per year. Go to http://www.instantdaycareprofits.com/

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