Are Daycares Profitable

Are Daycares Profitable – It’s been a tough few years for a child care provider in southeast Minnesota, and it looks like things aren’t getting any better.

Before the pandemic, he said, he faced very low enrollment. Now, she said, she is faced with unpredictable enrollment, which means she will never have a steady salary, and inflation, which sometimes means she won’t have much left after paying the bills to pay herself.

Are Daycares Profitable

“The cost of running my daycare continues to rise, but I can’t continue to put the extra cost on my daycare families; they can’t afford childcare as it is,” she said. “I’m not close to getting it. I love my job but I’m not sure how long I can stay open.”

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He is one of more than 1,000 child care providers in Minnesota surveyed in April by the Minneapolis Fed and First Children’s Finance (FCF), and his struggle is common. The anonymous survey found that enrollment is no longer declining for most providers, but the majority found it unpredictable. Many struggled with higher costs; many described high levels of stress and fear.

When asked how long they could stay in business under current conditions, 1 in 5 said a year or less, and half said they did not know (Grade 1).

“This is a disturbing level of insecurity across the sector,” said Suzanne Pearl, director of FCF in Minnesota, in a recent webinar about the survey. “The childcare sector has particularly lost family childcare providers for years, with not enough new providers starting to replace that capacity.”

Child care providers play an important role, she said, “not only for the families they serve, and the children they care for, but they are a fundamental and critical component of our state’s economy.”

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The survey is not randomized and may not be a complete representation of the child care industry. However, the sample size was large, including 1 in 10 licensed providers in the state, and the breakdown by provider type and location in the survey is similar to the current estimates.

The demand for child care appears to be very high across Minnesota, with providers from all corners of the state often reporting daily calls from parents requesting openings.

However, providers have not yet reported an increase in enrollment (Graph 2). A significant number say enrollment is lower than it was a year ago, particularly among family child care providers, typically licensed in-home providers for 14 or fewer children. Family providers have been in decline for years before the pandemic, with fewer children being cared for in these settings compared to child care centers, which typically care for larger groups of children in ‘institutional environments.

Pearl saw some signs of improvement in the enrollment data, but cautioned that even those who say enrollment has not changed may not be in a good position because the comparison is with 2021 when many more providers reported declines registration. In March 2021, half of providers surveyed by the Minneapolis Fed and FCF said enrollment had declined during the pandemic.

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The April 2022 survey offers some clues as to why high demand is not translating into higher enrollments for many.

A common explanation for declining enrollment is the inability to hire enough teachers, despite the offer of higher wages by most providers.

The state requires providers to maintain a certain teacher-child ratio, so a teacher shortage limits enrollment growth, Pearl said. “These difficulties in hiring or retaining staff have a real and tangible impact on the availability of child care for Minnesota families.”

“Usually when we lose a staff member, it takes a minimum of four months to find his replacement.”

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Not all providers employ staff, but among those who do nearly half say short-term staffing is preventing them from increasing enrollment. If they could hire them, they said, they could increase the current enrollment by almost a quarter. Unfortunately, 60 percent of providers who have employees or plan to hire said they found hiring “very difficult” and another 22 percent said it was “difficult.” A year ago, only 47 percent said hiring was “very difficult.”

“There is no shortage of children for all programs in the area,” said a central Minnesota care center manager in the survey. “However, there is a real problem to find staff, especially staff who are qualified to be a teaching assistant. Usually, when we have a staff member, it takes a minimum of four months to find his replacement” .

The lack of teachers is particularly affecting childcare, which many providers said was in very high demand compared to pre-school and older childcare. But young children need more staff than older children. The state requires a teacher-child ratio of 1 to 4 for children. The proportions are greater for older children. For school-aged children, the ratio is 1 to 15.

Many providers said they earn very little caring for children. They cannot charge the full cost of care because most parents cannot afford it. A supplier said that she stopped accepting children because she always lost money to take care of them and the fact that there was not enough staff made her less useful. Older children, because they do not need as many teachers, are more profitable to look after. Most professionals still accept children because children tend to stay with the same provider as they get older, and sometimes have older siblings.

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The pandemic has slightly disrupted this strategy of losing one’s head, with more parents working from home. Providers said these parents tend to keep children old enough to not need constant attention at home with them, saving school and reducing the risk of infection with COVID-19.

“Come summer, a lot of kids are going to leave and stay with older siblings who aren’t really old enough to take care of the kids, but families are hurting, too,” said a Twin Cities family provider. “Others can work from home now, so [they] work from their cabins in the summer months and no longer need care for those months.”

More than half of the providers also reported unpredictable enrollment. For this, some have meant changes in assistance. Families keep children at home if they may have contracted COVID-19 or if schools switch to online learning during disease outbreaks. This can affect the bottom line of providers if parents do not make up for days when children are absent. Many unpredictable changes are more permanent, providers said, such as when parents lose their jobs, switch to remote work, or even pull their children after they disagree with their parents’ policies on COVID -19.

Higher salaries or bonuses were paid by 85 percent of providers with staff. And almost 70 percent had to pay more to cover staff absences due to illness, such as COVID-19. Inflation has also increased other costs, with many, especially family providers, reporting significant increases in the cost of food, pandemic supplies such as face masks, and transportation (Graph 3).

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“Absolutely everything costs more right now. Shopping for food. Paying for gas. Paying for liability insurance,” said a Twin Cities family provider. “Cutting corners doesn’t always work, especially when I work with kids. They deserve my best, even when I’m exhausted.”

But she and many others had to cut costs. They saved on the essentials, such as utility bills, rent, staff wages and food, but reduced maintenance, and also paid less.

A family provider in southeastern Minnesota complained: “I have a BA in early childhood [education] and I can’t afford to pay $13 an hour.”

The director of a Twin Cities child care center that said it would raise wages and offer bonuses to ensure adequate staffing said, “I don’t have enough money to pay myself what I pay everyone else.”

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For Pearl, the most poignant choice providers had to make was between feeding their children and providing a stimulating learning environment. “There were just a lot of comments about the choices the providers were making. “I’m cut out in games.” “I’m cut out in recovery.” “I’m cut out in activity to afford to eat.” It was tough.”

On the income side, many providers are limited by what families can afford. This is especially true for family providers – typically the youngest providers in the household – with only 1 in 5 increasing tuition in the last year. For child care centers—the typically larger institutional providers—slightly more than half increased tuition, but that left a fairly large number that did not.

“I would love to raise my rates, but with gas and food prices going up, I know how it’s going to go,” said a family provider in central Minnesota. “I’ve been doing this for years. Parents will take kids out of day care to pay the bills.

Family providers are more reluctant to raise tuition even when they are in financial trouble, in part because they serve far fewer families and the loss of even one can mean a large loss of income, according to Pearl. Family providers in the survey reported an average enrollment of 10 compared to 73 for child care centers. Family providers also tend to know their families very well.

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“I’d like to raise my rates, but with gas and food prices going up, I know how it’s going. … Parents take their kids out of day care to pay

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