Are fee increases the only option to protect early learning centres from inflation?

As has been widely reported in recent days Australia’s inflation rate, the rate at which prices of goods and services are rising across the economy, rose by 7.8 per cent compared to last year, a larger than expected increase,and the highest jump since 1990.

 

With prices of electricity up 8.6 per cent, food and drink up 9.2 per cent and household equipment and services, (which includes cleaning products, wipes, tissues and nappies) up 8.4 per cent it is no wonder many early learning centres are feeling overwhelmed by the impact inflation is having on their organisations right now. 

 

“The single most common question we are getting from our network of clients right now is how to mitigate the impact of inflation on the financial health of their businesses,” Ben Marcos, a certified practicing accountant and founding member of specialist ELC bookkeeper Early Learning Bookkeeping, said.

 

“It seems that many owners and operators are electing to raise fees. A move which, if managed carefully, can be helpful.” 

 

“However, from our perspective as specialist early learning bookkeepers there are other complementary strategies that can create excellent inflation protecting results when coupled with sound financial practices being adopted.”

 

Fee increases – When and how much? The key things to look for in your financials

 

Regardless of whether your centre is for-profit or a not-for-profit provider at the end of each month someone, somewhere, will be counting up the total revenue generated and subtracting it from the total costs. 

 

“The question of how to manage shrinking cash flows due to rising costs is a very tricky one,” Mr Marcos said. “Many providers have a strong sense of loyalty to their families, and are conscious of just how a fee increase will impact families and their budgets.” 

 

“That’s why we at Early Learning Bookkeepers first work with our clients to complete fee increase groundwork, which helps us understand the appropriate amount and timing of any potential fee increase, before it is finalised.”

 

As specialist bookkeepers, the team at Early Learning Bookkeepers use a key metrics dashboard, tailored for each centre, to identify when cost pressures reach concerning levels, and then, if requested, proceed with a thorough catchment fee review combined with a fee increase impact summary to understand the degree of an increase and its impact. 

 

Are fee increases enough to protect against inflation? No, a hybrid approach is best

 

Fee increases, correctly calculated and proactively applied, are an invaluable tool in the fight against inflation, but it is not the only strategy available to help business owners and operators in the early learning sector. 

 

“It would be easy if we could rely on fee increases to solve all of our rising prices problems, but unfortunately that is not the case. Excessive fee increases, without addressing underlying financial hygiene, is not a recommended approach to managing an early learning business,” Mr Marcos said. 

 

“What sets the efficient owners and operators apart is having a clear overview of the main costs that are driving the price increases and seeking out ways to either anchor or reduce them.”

 

That is why Early Learning Bookkeepers strongly encourages its network of owners and operators to use a hybrid approach to managing inflation, namely via carefully considered fee increases, alongside action to manage existing costs. 

 

Understanding early learning costs and ‘inflation-proofing’ your organisation 

 

The team at Early Learning Bookkeeping estimate that on average;

 

• Cost of wages make up around 50 per cent to 65 per cent of total service spend (sometimes higher for not for profit providers) 
• Rent around 10 per cent to 15 per cent and;
• other costs, such as direct child care expenses and overheads, around 10 per cent to 15 per cent of a services income.   

 

“At times when cost inflation is on the up, it pays to have really good visibility of your own centre’s costs and what other similar providers may be experiencing too,” Mr Marcos explained. 

 

“As a provider of bookkeeping services to a growing number of early learning centres, we have developed useful, easy to understand tools to help monitor costs and benchmark them to the broader community, which then helps to continually check where their centre is sitting.”

 

Key areas of focus in recent months for providers looking to streamline or anchor costs are in areas such as agency staff usage, insurance, electricity, food and nappy costs, as well as cleaning materials. 

 

“Early Learning Bookkeeping has emerged as an essential partner for owners and operators looking to stay one step ahead. Our collective experience, genuine approach and suite of tools is making a real difference right now and we hope to continue growing our community of like-minded providers.”

 

Learn more about how the team at Early Learning Bookkeeping can support your service.