Financial Basics for Nanny Agency Owners
Let’s be honest. You started a nanny agency because you loved helping families find the right people to care for their children. Numbers weren’t part of the initial agreement, and if you’re like me, you don’t love talking about them. However, analyzing your finances is an important part of running a successful agency.
Why the numbers matter
When you understand your financial statements, you can:
- See how your agency has performed and how it may grow in the future
- Pinpoint which nanny or childcare services are bringing in the most revenue
- Decide if you can grow your team or not
- Figure out which areas of your business need extra attention or cash flow
Plus, COVID-19 has probably affected your cash flow, and you may be looking for some financial relief to keep your business thriving. You won’t know what you really need unless you dive into your finances.
With that in mind, I’m here to help you get started. Let’s review some basic financial terms and info you’ll come across as a small business owner of a nanny agency.
Assets
Assets are anything your agency owns that has monetary value. Your assets will fall into two categories: fixed assets and current assets.
- Fixed assets are tangible things that you expect to use for a while. Equipment and office space are examples of fixed assets.
- Current assets are items that you expect to use within a year. Think cash on hand that you plan to use to invest in new training, tools, etc.
Liabilities
A liability is any money your agency owes to outside parties. Most of your liabilities are monthly expenses, such as agency office rent, utility bills, wages, and accounts payable.
Balance Sheet
A balance sheet is a basic snapshot of your company’s net worth. Here’s a basic equation you might see on your balance sheet:
Assets = Liabilities + Equity
Equity is the amount of capital invested in your business; you might also call it “owner’s equity” if you’re the sole owner of your nanny agency.
To create a balance sheet, simply add up your assets in one column, liabilities in another, and equity in a third. The assets on the left should equal the total amount of your liabilities plus equity on the right.
Cash Flow Statement
Along with a balance sheet, a cash flow statement is another important financial statement for your business. A cash flow statement measures how cash is generated and used over a specific period of time, usually by month. That way, your accounts never dip below zero!
Your cash flow statement may be broken up into sections like:
- Operating activities: cash from running the business and selling your services; includes wages, income tax payments, rent
- Investing activities: cash from buying and selling assets other than inventory (if any)
- Financing activities: cash from investors, banks, loans, repayments of debt
Cash flow statements help you understand where your money is coming from, how it’s being spent, and if your finances are stable.
Income Statement
An income statement is the final financial statement that you need for your agency, alongside balance sheets and cash flow statements. It’s also called a profit and loss statement (P&L statement).
With an income statement, you’ll have a more comprehensive understanding of your agency’s financial performance over a specific period, like the previous fiscal year.
Here’s an equation you’ll use on your income statement:
Net Income = Revenue - Expenses
To find your agency’s net income, you’ll total up all revenue in your chosen period of time. Then, total all expenses and costs for running the agency. Subtract the total expenses from your total revenue, and you get your net income (profit).
An income statement can help you see how your agency is performing compared to past time periods.
Follow Megan Metzger Consulting for more financial tips
If you’re not naturally “good” with numbers, tackling your agency’s finances can be intimidating. I hope this post has eased your worries and helped you gain a better understanding of your agency’s finances.
Follow my blog for more resources on operating and growing your nanny agency! Keep an eye out for future posts addressing financial statements, budgeting, and more.
