Budgeting According to Cash Flow

Budgeting According to Cash Flow

1. Identify at least three ways how a child care center could be financed and explain how each may impact the financial management plan of the business.

First and foremost, the childcare center would require seed money, which will be derived either in the form of a direct investment by a member of the startup organization, in the form of an investment from an outside stakeholder or through the securing of a small-business loan. Any of these would be considered a common and acceptable means through which to finance the business in the initial phases of acquiring facilities, resources, personnel and all related licenses and certifications. The impact would be, in most instances, a set of terms for repayment of an investment, meaning that the company is, in either the second or third of the above scenarios, beginning its existence in a position of debt. One way to immediately address this situation is being the process of financing through payment by clients. This would mean tuition in the case of a childcare center. As indicated in the tutorial provided by Bank of America's Virtual Advisor, requiring payment terms which acknowledge both the realities of a marketplace and the needs of the organization will help to create a genuine cash flow. The nature and degree of payment terms will be, as our research indicates, a crucial determinant factor upon which so many other financial indicators will bear a reciprocal relationship. To this extent, "many small businesses fail to make a profit because they erroneously price their products or services. Pricing is the critical element in achieving a profit and maintaining positive cash flow. Before setting your prices, you must understand your product's market, distribution costs and competition." (FSO Technologies, 5) For the childcare center, a careful consideration of these contextualizing factors will be necessary to establish appropriate rates and payment schedules. In the long term, financing can be achieved through other creative means such as public or private sponsorship and the awarding of public grants. In either of these cases, long-term credibility and success will have a significant influence in eligibility. Once achieved, such measures would dramatically enhance the flexibility, resources availability and marketing reach of the center.

2. Discuss, in terms of applying these general concepts to your child care site how financing and management plan may or may not help you as a director of a child care development center. After considering the material provided by both the FSO Technologies and Bank of America tutorials, it becomes increasingly clear that the key to long term financial viability is projection and planning. In the case of the childcare center, the tutorial advised that once one has clearly mapped out a cash budget which compares expected cash inflows and outflows, one can begin to make meaningful incremental and longterm changes in spending and pricing. As the childcare center director, I would be in a unique position of insight to administrate a consideration of all the utilities, employees, facilities, marketing and petty expenses which constitute our overall budget. This would also allow me to detect places where expenses can be reduced or where more is needed. By combining this with a projection of future cash needs, I would be in a position to assess the true nature of our overall cash flow situation. This would allow me to make management decisions according to a lucid and empirical understanding of what is feasible and what is not.