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The Business Plan: The Roadmap to Success

An entrepreneur planning to open a childcare center will need a business plan to secure financing or investment capital. However, a business plan is much more than a tool to obtain financing. A well-prepared business plan is the roadmap to:

• What type of child care is most feasible
• What market niche of customers should be targeted in its market area
• What should the brand identity be and what attributes are required for its success
• How should the business be successfully operated

“Businesses don’t plan to fail, they fail to plansm.” The written business plan is what ultimately determines the business’ success by setting out both the needed planning in precise detail and how the business will be marketed and operated.

There are a large number of business plan software packages, websites, books and other aids that are guides to preparing a business plan. They all outline the needed basic components. In summary, any good business plan includes, at a minimum:

• Description of the business
• Description of the target market
• Competition analysis
• Market feasibility analysis
• Description and expertise of management team
• Marketing plan
• Operations and personnel plan
• Start-up costs
• Pro forma profit and loss statements
• Pro forma cash flows
• Pro forma EBITDA
• Breakeven analysis

It is the market feasibility study that becomes the foundation for not only revenues, but just as importantly, for exactly what the child care center should be -- its mix of ages served and size, its level of finishes, its type of service, all its traits that ultimately determine its brand identity.

We have seen many childcare centers perform poorly or fail due to having a poorly researched and prepared business plan lacking a solid market feasibility foundation. Most often, this results from entrepreneurs who perform their own market feasibility study and project both attendance and expenditures when they have neither experience nor a firm basis on which to:

• Determine exactly what the geographic market area will be
• Understand how to interpret the demographics and socioeconomic-lifestyles of the market population
• Determine the impact of competition (entrepreneurs, due to their belief in their business concept, tend to discount competition even when it is real)
• Understand how to interpret all the above to determine the best type, mix, and size for the child care center to best match its market
• Understand how to interpret all the above to derive attendance and per capita projections.”

Another error we often see in the childcare business plans is totally unrealistic construction costs, often based on using generic square-foot estimates. Without a preliminary design plan with sufficient detail and finish scope descriptions any cost estimate will basically amount to mush. This is because a general contractor needs a design plan to develop a reliable construction cost estimate. In case you haven’t noticed, childcare facilities have many more sinks and toilets than most businesses. A detailed plan is also needed for a detailed cost estimate of all equipment, furniture, fixtures, soft and start-up costs. The big risk is that once you fund the project with lenders and investors, if the cost estimate was too low, you either can’t finish the project, the lenders and/or investors will have you over a barrel for additional funding or the project can’t be completed as designed, resulting in lower than projected revenues.

A well-prepared thorough childcare business plan will run up to 60 or more pages. This isn’t something that can be accomplished in a few days or weeks. Having a convincing and credible story is essential, but typographical and spelling errors will quickly doom a business plan. Even worse are mathematical errors in the financial projections, often due to formula mistakes using Excel. Financiers and investors find it hard to have any confidence in an entrepreneur’s ability to execute a successful business if they can’t deliver a business plan free of typos and errors. It just doesn’t come off as professional.

It takes money to find money. The market feasibility study, preliminary design plans, detailed cost estimates and pro forma financial projections required for a credible business plan cost money when prepared by an industry expert.

A business plan is the first step to launching a child care business. With comprehensive preparation, it will become your blueprint to a sucessful and longterm business.

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