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Child Care Facilities Planning and Financing Workshop

Child Care Facilities Planning and Financing Workshop. Presented by: Illinois Facilities Fund www.iff.org (312) 629-0060. Introduction Workshop Objectives. Develop an understanding of: The importance of planning for a child care facility development project

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Child Care Facilities Planning and Financing Workshop

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  1. Child Care Facilities Planning and Financing Workshop Presented by: Illinois Facilities Fund www.iff.org (312) 629-0060

  2. IntroductionWorkshop Objectives Develop an understanding of: • The importance of planning for a child care facility development project • The tools you will need to define the scope and implement a child care facility development project • How to assess your agency’s capacity to undertake a child care facility development project

  3. Facilities are Key to Program OperationsPlanning is a Balancing Act • Programming • Finances • Management • Board • Facilities

  4. Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs • Explore Financing Options • Manage the Development Process

  5. Assess Agency Readiness Consider and evaluate internal and external factors • Internal = Agency structures and organization; program • External = Demand (market) for services and facilities

  6. Assess Agency ReadinessEvaluate Internal Factors Program Goals and Needs • Look at your current operations • Clearly define your long-term program goals • Does your child care facility meet your agency’s current program needs?

  7. Assess Agency ReadinessEvaluate Internal Factors Agency Structure and Organization • How effective is your Board? • Strategic plan • Leadership and financial support • Do you have staff buy-in for a facility project?

  8. Assess Agency ReadinessEvaluate Internal Factors Meeting Future Growth Needs • If you intend to expand in the next 3-5 years, will your current space meet those future needs? • Room for growth? • Sufficient control of property and associated costs? • External forces considered?

  9. Assess Agency ReadinessEvaluate External Factors Demand for Services • Has demand for your child care services changed? • Local / National economy • Community changes

  10. Assess Agency ReadinessEvaluate External Factors Funding Sources • Have your sources of funding changed? • Subsidy eligibility policies • Government contracts? • Will these changes affect your operations—staffing and program budgets?

  11. Case Study:ABC Agency • Operates 2 classroom center currently licensed for 68 children part day, but only 50 children are enrolled. • Enormous demand among parents for full-day care and infant/toddler care. • ABC leases half of an existing building. The other half was just vacated by medical offices. ABC

  12. Classroom Classroom Stor. Reception REF REF REF D/W Case Study:ABC Agency Here is ABC’s current site plan Gravel yard Half height wall Existing Medical Offices s storage Parent area office Director Vestibule KITCHEN Parking

  13. Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity

  14. Evaluate Financial Capacity Look at these two components: • Financial Strength • General financial condition • Cash management • Sources of revenue • Financial Systems

  15. Evaluate Financial CapacityFinancial Strength General financial condition • Are you operating at a surplus? • Do your government and parent payments cover your expenses? • How much must you fundraise?

  16. Evaluate Financial Capacity Financial Strength Cash Management • Are you receiving parent payments in a timely fashion? • How quickly do you receive reimbursements for government contracts and certificates? • Do you have capacity to “float” any delays / lags in reimbursements? • How are vacancies and seasonal attendance accounted for in cash flow?

  17. Evaluate Financial Capacity Financial Strength Sources of Revenue • How stable are your contracts/certificates? • Are there ways you can diversify your revenue sources? Can you collaborate? • Fundraise? “I’m taking my voucher and going to circus school.”

  18. Evaluate Financial CapacityFinancial Systems • Are your financial and administrative systems effective? • Enrollment • Reimbursement • Collection • Is the information in your financial statements and other reports useful for planning purposes and timely decision-making? • Is there a system of checks and balances?

  19. Evaluate Financial CapacityFinancial Systems • Does your board do a meaningful review of finances on a regular basis? • Can your financial and administrative systems expand to meet the growth? • Sufficient technology

  20. Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space

  21. Case Study: ABC AgencyPlanning for Expansion • Landlord will sell building to ABC for $235,000 or lease entire building. • Center decides to add one infant and one toddler classroom, and convert a 3-5 year old classroom to full day. • ABC must develop a project budget and explore financing options. ABC Child Care Agency ABC

  22. Case Study: ABC AgencyPlanning for Expansion Things to consider when deciding between Leasing and Buying: ABC decides to pursue purchase!

  23. Case Study: ABC AgencyPlanning Child Care Space Calculate your space needs:

  24. D/W D/W Toddler Classroom 3-5 Year Old Classroom Infant Classroom D/W D/W D/W REF Washroom Kitchen REF D/W Case Study: ABC AgencyPlanning Child Care Space Here is ABC’s new site plan: Infant/Toddler Playground 3-5 Year -Old Playground OFFICE SUITE Toddlers 3-5 Year Olds storage Laundry Reception Infants 3-5 Year Olds KITCHEN Conf. Room/Parents

  25. Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget

  26. Estimate Program Expansion BudgetFinancial Projections Determine Projected Revenue • New numbers of children • New reimbursement rates • New programs • New fundraising • Determine Projected Expenses • New personnel • Added costs based on more children • Increased facility size and occupancy costs • Cost savings?

  27. Case Study: ABC AgencyExpansion Budget Start by looking at your current Operating Budget

  28. Case Study: ABC AgencyExpansion Budget Calculate your projected revenue using your new number of clients and contract/certificate rates:

  29. Case Study: ABC AgencyExpansion Budget Calculate your projected expenses using your new number of staff and new size of facility:

  30. Case Study: ABC AgencyExpansion Budget Compare your revenues and expenses to project what your new budget would look like. Do you have a surplus?

  31. Estimate Program Expansion BudgetStart Up Considerations • Expenses exceed revenues in first months of operation because: • Staff hired before children attend • Agency receives reimbursements with delays • Agency must plan for this time!

  32. Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs

  33. Determine the Real CostsFacility Costs • Hard Costs • Site Acquisition • Construction • Soft Costs • Architecture and Engineering • Specialties and Fees • Developer / Project Manager • Furnishings and Equipment • Other • Contingency (At least 10% of total) • Construction Interest

  34. Case Study: ABC AgencyDevelopment Budget ABC

  35. Determine the Real CostsOrganizational Costs • Staff Costs • Staff time working on project • Lost Operating Revenues • Reduced earned income due to curtailed programming • Reduced annual giving due to capital donations • Costs of Growth • Larger administrative staff • Computers, telephones, copier • Start Up Costs • Ramp up • Temporary move • Moving and storage

  36. Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs • Explore Financing Options

  37. Explore Financing OptionsCapital Funding Sources How can we pay for the project? • Use current agency cash • most funders will look for agency to contribute at least 10% in equity • Foundation Grants • Many foundations interested in supporting child care • Some foundations do not give funds for capital

  38. Explore Financing OptionsCapital Funding Sources How can we pay for the project? • Capital campaign • Coordinate your efforts • Clear message to known audience • Set clear and realistic goal • Consider using a consultant • Beware: Capital may “poach” operating support

  39. Explore Financing OptionsCapital Funding Sources How can we pay for the project? • Government Resources • Federal Head Start Capital • Illinois Dept. of Commerce & Community Affairs • U.S. Dept. of Agriculture • City Government

  40. Explore Financing OptionsCapital Funding Sources How can we pay for the project? • Borrow the funds • Local Bank • CDFI BUT...

  41. Explore Financing OptionsCommon QuestionsAbout Borrowing • “We’re a nonprofit…We can’t borrow” • “No bank will lend to us” • “Our revenues vary. Can we really make long-term commitments?” • “Our board doesn’t believe we should borrow” • “How much can we borrow?”

  42. What is their surplus? Revenues - Expenses = $82,920 What debt can that support annually? (debt coverage) $82,920/1.2 = $69,100 What is their monthly payment? $69,100/12 = $5,758/month How much can they borrow? TERM OF LOAN IN YEARS Case Study: ABC AgencyWhat Can TheyBorrow?

  43. Explore Financing OptionsLoan Evaluation Factors • Loan to Value Ratio • Security and Collateral • Equity

  44. Explore Financing OptionsWhat Funders Want to Know • Demonstrate agency strength • Organizational history • Management team • Make the case for the project • Demand, market analysis • Financial Program Projections • Project Planning • Project Development Team • Project Budget • Sources of Funding

  45. Case Study: ABC AgencyPutting It All Together: A Financing Plan We know that: Project Costs are: $772,257 ABC canafford toborrow up to: $640,612 @ 7% interest over 15 years BUT… ABC

  46. Case Study: ABC Agency Filling the Gap • Local Bank will only lend 75% of appraised value (LTV) • Building appraises at $75 per square foot= $435,000 • Therefore, Local Bank will only make a loan of$326,250 • This leaves a gapof$446,007 • How can ABC afford this project?

  47. Case Study: ABC Agency Filling the Gap Gap = $446,007 • Architectural scope of project should be reviewed to see if it can be reduced • ABC should seek donations for furniture and play equipment • ABC will make an equity contribution to the project

  48. Case Study: ABC Agency Filling the Gap Here’s what ABC decided to do: ABC will raise 10% of project costs through a capital campaign: $77,226 Now the gap is $368,781 ABC knows it can take on more debt…

  49. Case Study: ABC Agency Filling the Gap • Recall that ABC can afford $5,758 per month in loan payments. Local Bank’s loan costs them $2,932 per month. They can afford $2,826 more inloan payments each month. • Let’s take a closer look at how a CDFI loan at 5% can make the numbers work: ABC is almost there. The gap is down to $11,418

  50. Case Study: ABC AgencyFilling the Gap Let’s see how the financial package looks now.

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