How Much Does It Cost to Run a Daycare? The Accounting Numbers Owners Need to Know

For daycare owners, understanding the major cost categories is essential before setting fees, hiring staff, expanding capacity, or evaluating profitability. A daycare accountant can help turn these figures into reliable financial information and identify areas where costs may be affecting the centre’s performance.

Staffing Is Usually the Largest Expense

Labor is often the most significant operating cost for an Ontario daycare. The total cost goes beyond hourly wages and salaries. Owners may also need to account for vacation pay, statutory holiday pay, employer payroll contributions, benefits, training, and other employee-related expenses.

Staffing requirements can also depend on the number and ages of enrolled children, applicable regulations, operating hours, and the services provided.

Because staffing is such a large expense, owners should monitor payroll as a percentage of revenue and review staffing costs against enrollment levels. Overstaffing can reduce margins, while understaffing may create compliance and operational problems.

Rent and Occupancy Costs

Facility costs can significantly affect daycare profitability, particularly in Ontario’s higher-cost urban markets. Rent may be accompanied by common-area charges, property-related expenses, utilities, maintenance, insurance, and cleaning costs.

Owners should evaluate the total occupancy cost rather than looking only at monthly base rent. A facility that appears affordable based on rent alone may have substantially higher operating costs once all related expenses are included.

When considering a new location, owners should model occupancy costs against realistic enrollment and revenue assumptions before signing a lease.

Food and Program Supplies

Depending on the daycare’s services, food can represent a meaningful recurring expense. Centres providing meals and snacks need to budget for groceries, kitchen supplies, storage, and related costs.

Program expenses may include books, toys, art materials, educational equipment, outdoor supplies, and replacement items. These costs can fluctuate significantly as enrollment changes. Tracking these expenses by category helps owners identify unusually high spending and establish realistic budgets for future periods.

Insurance and Professional Services

Daycare operators generally need appropriate insurance coverage for their premises, operations, employees, and other risks. The exact requirements depend on the business structure, facility, services, and insurance provider.

Professional services can include accounting, legal advice, payroll services, IT support, and other specialized assistance. These expenses should be incorporated into the centre’s operating budget instead of being treated as unexpected costs.

Licensing, Compliance, and Training Costs

Ontario daycare operators must account for costs associated with maintaining compliance with applicable childcare requirements. Depending on the centre’s circumstances, expenses may include licensing related requirements, staff training, safety equipment, inspections, recordkeeping, and professional development.

These expenses may not occur evenly throughout the year, so owners should anticipate periodic costs rather than relying solely on monthly averages.

Technology and Administrative Expenses

Modern childcare centres may rely on software for enrollment management, billing, attendance, payroll, communications, accounting, and documentation. Subscription costs can accumulate across multiple platforms. 

Other administrative expenses may include office supplies, telecommunications, payment processing fees, marketing, banking charges, and website maintenance. Reviewing these expenses periodically can reveal subscriptions or services that are no longer necessary.

Understand Revenue Before Calculating Profit

A daycare’s profitability cannot be assessed from expenses alone. Owners need a clear picture of all revenue sources, including parent fees, government funding, subsidies, grants, and other eligible income.

Ontario’s childcare funding environment can involve different programs and funding arrangements, so operators should maintain accurate records for each revenue stream and understand the applicable requirements.

Revenue should also be analyzed according to enrollment. For example, a centre operating below its practical capacity may have significant unused revenue potential even if its current financial statements show a profit.

Calculate Break-Even Enrollment

One of the most useful numbers for a daycare owner is the enrollment level required to cover operating costs.

To calculate a basic break-even point, owners need to identify fixed costs, variable costs, and average revenue per child. Fixed costs may include rent, certain salaries, insurance, and software. Variable costs can include food and some program supplies.

The calculation should use realistic assumptions rather than maximum enrollment. This helps owners determine how many enrolled children are needed to cover costs and how much additional enrollment could contribute toward profitability.

Monitor Cash Flow, Not Just Profit

A profitable daycare can still experience cash flow problems. Revenue may be recorded before payments are collected, while payroll, rent, taxes, and supplier invoices require timely payment.

Owners should monitor accounts receivable, upcoming obligations, available cash, and expected funding receipts. A monthly cash flow forecast can help identify periods when the centre may need additional working capital.

This is particularly important when expanding, purchasing equipment, renovating a facility, or opening another location.

Use Monthly Financial Statements to Control Costs

A daycare should not wait until tax season to determine whether expenses are under control. Monthly income statements can show whether revenue and expenses are tracking against budget.

Useful indicators include payroll as a percentage of revenue, occupancy costs, cost per enrolled child, operating margin, accounts receivable, and monthly cash flow.

Comparing actual results with prior months and the annual budget can help identify cost increases early. If a particular expense rises consistently, management can investigate the reason before it significantly affects annual profitability.

Get Professional Financial Support

The cost of running an Ontario daycare varies considerably based on location, facility size, staffing model, enrollment, services, and funding structure. There is no single expense figure that applies to every centre. The better approach is to build a detailed operating budget and monitor actual results throughout the year.

A daycare accountant can help owners establish accurate bookkeeping, prepare financial statements, monitor expenses, manage tax obligations, and evaluate the financial implications of operational decisions. Professional accounting support can be particularly valuable when a centre is expanding or dealing with multiple funding and revenue streams.

Accounting Support for Daycare Owners

Spectrum CPAs provides accounting and advisory support for daycare owners, helping them manage bookkeeping, payroll, tax compliance, financial reporting, and other financial requirements. We understand the accounting considerations that affect childcare businesses and provide practical support designed to help owners maintain accurate records and make informed decisions. If you need a daycare accountant who understands the financial side of operating a childcare business, our team can provide the ongoing support you need.