Financial Management, Insurance and Taxes
Center-based programs can have higher and more complex financial demands than FCC settings. Effective financial management supports sustainability and growth.
Key practices include:
- Separating business and personal finances
- Tracking all income (tuition, subsidies, grants)
- Budgeting for staffing, rent, insurance, supplies, and reserves
- Maintaining accurate payroll, tax & insurance records
- Retaining financial records for at least three years
- Seeking free consulting from OCIE SBDC for projections and planning support
Strong financial planning helps center businesses stay stable through enrollment shifts.
Financial strategies include:
- Accounting systems that support multiple classrooms
- Cost-per-classroom modeling to inform sustainable tuition rates
- Exploring subsidy programs and blended funding
- Forecasting long-term maintenance and renovation costs
- Tracking reimbursement and cash flow cycles
Considering Infant/toddler slots while more resource-intensive, may create greater revenue stability and support mission-aligned expansion.
Quick Tip:
Ask SBDC for tailored cash-flow projections before setting tuition or staffing levels. Strong financial systems are especially critical when expanding capacity or opening additional sites
Child Care Insurance Needs
Adequate insurance coverage is a critical part of operating a safe, compliant, and sustainable child care business. Insurance helps protect providers, staff, children, families, and physical assets while also supporting licensing compliance, landlord agreements, and funding or contract requirements. Insurance needs vary based on the type of program, size, staffing structure, and facility.
Child Care Centers typically have more complex insurance needs due to larger group sizes, multiple classrooms, employed staff, and use of commercial facilities. Comprehensive insurance coverage is essential to protect the organization, meet regulatory and contractual requirements, and support long-term operations.
Key insurance considerations for Child Care Centers include:
- General Liability Insurance covering bodily injury, accidents, and property damage
- Professional Liability Insurance related to child supervision, curriculum implementation, and program practices
- Commercial Property Insurance for buildings, classrooms, playgrounds, equipment, and materials
- Workers’ Compensation Insurance for all employees, as required by law
- Employment Practices Liability Insurance (EPLI) to address staff-related claims
- Commercial Auto Insurance if transporting children or using agency-owned vehicles
- Umbrella or Excess Liability Coverage for added protection based on program size and risk exposure
Child Care Center businesses may also be required to provide proof of insurance to licensing agencies, landlords, funders, school districts, or contract partners. Coverage should be reviewed regularly especially when adding classrooms, expanding enrollment, opening additional sites, or increasing staffing levels.
Quick Tip: Insurance needs often change as programs grow. Providers and center operators are encouraged to work with an insurance professional who understands early care and education settings and to review policies annually to ensure coverage remains appropriate and current
Taxes & Recordkeeping
Choosing the right tax preparer is an important part of operating a child care center and it’s normal to feel unsure about where to begin. Child care centers often have more complex financial structures than home-based programs, including payroll, multiple funding sources, and facility-related expenses. Finding qualified tax and accounting support that understands center-based child care can help reduce stress and protect your business.
Managing the finances of a child care center can feel complex, especially as your program grows and takes on additional responsibilities. This simple decision guide is designed to help you determine when working with a CPA, accountant, or payroll specialist may support compliance, protect your business, and ease the administrative load.
Tax Decision Flow Guide START HERE
Will you have paid staff or substitutes?
Yes → Consider a CPA or payroll specialist (payroll taxes, W-2s, compliance)
No → Continue to next question
↓
Will you receive more than one funding source?
(Tuition, subsidies, grants, contracts)
Yes → Professional guidance recommended (cost allocation, reporting)
No → Continue to next question
↓
Will your program be structured as an LLC, corporation, or nonprofit?
Yes → CPA support strongly recommended
No / Sole Proprietor → Continue to next question
↓
Are you opening, expanding, or preparing for an audit or review?
Yes → Seek professional support early
No → Continue to next question
↓
Does tax season feel stressful, confusing, or overwhelming?
Yes → A CPA can provide clarity and peace of mind
No → Maintain strong internal systems and schedule an annual review
Quick Tip:
If you answered “Yes” to one or more questions, connecting with a CPA, accountant, or payroll specialist may help protect your program, ensure compliance, and support long-term sustainability
A Resource Table sharing free and low-cost tax & recordkeeping websites and articles can be found in the Additional Resources section of this Toolkit.
Free Resources for FCC Tax & Recordkeeping
| Resource / Title | Why It’s Useful / What It Provides |
| Internal Revenue Service (IRS) — “Sample template for use by childcare providers” | A simple template to help you provide official documentation of care services to families for tax purposes (dates of care, child/parent name, address, etc.). IRS |
| “Day Care Income and Expense Worksheet” (PDF) | A ready-to-use worksheet to track all income and expenses for your child care business ideal for annual tax prep or monthly budgeting. Karla Havemeier, Ltd. |
| “Family Child Care Record Keeping and Taxes” — Resource Guide | Offers guidance on recordkeeping best practices for FCC providers, including how to track home-use expenses, food, attendance, income, and deductions. Child Care Technical Assistance |
| “Day Care Provider Checklist of Deductions” (PDF) | A comprehensive list of deductible expenses relevant to home-based child care providers helps you make sure you claim everything eligible. Gold Star Direct |
| “Preparing for Tax Season – Home-Based Child Care Provider Workbook” | A workbook specifically for home-based providers to prepare for tax filing, with clear explanations, step-by-step guidance, and helpful planning tools. Home Grown Child Care |
| “10 Record-Keeping and Tax Tips for New Providers” (PDF) | Clear, beginner-friendly guidance on best practices for recordkeeping, deductions, space/time calculations, meal logs, etc. useful for newer FCC providers. Anoka County |
| “Child Care Provider Audit Technique Guide” (IRS) | Official guidance on what records and documentation are needed to support your income and expense reporting important if you’re ever audited. IRS |
Record Keeping and Documentation
Accurate record keeping is necessary to continuously meet the requirements and provide effective business management. FCC businesses are advised to create an organized filing system that is easily used to maintain documentation in the following areas:
All Staff: Each person should have their own file or personnel record that includes:
- A personnel record shall be maintained on each employee and shall contain the following information
- Employee’s full name,
- Driver’s license number if the employee is to transport children
- Date of employment
- Date of birth
- Current home address and phone number
- Documentation of completion of training on preventative health practices as required
- Previous Experience, including types of employment and former employers
- Duties of the employee (job description)
- Termination date if no longer employed
- Immunization records
- A signed and dated copy of the Notice of Employee Rights LIC 9052_FCC
- A signed statement regarding their criminal record history
- Documentation of either a criminal record clearance or a criminal record exemption (prior to employment)
All Volunteers: Personnel records shall be maintained for all volunteers and shall contain the following:
- For volunteers that are required to be fingerprinted, a signed statement regarding their criminal record history,
- Documentation of either a criminal record clearance or a criminal record exemption
- Volunteer name and all pertinent contact information is also recommended
- Immunization records
- All personnel records must be kept for at least 3 years following termination of employment/volunteer work
- All personnel records shall be maintained at the child care home and shall be available to the licensing agency for review
All Children: Child files shall be maintain
- Enrollment Forms: Keep up-to-date enrollment forms for each child
- Immunization Records: Monitor and document the immunization status of all children.
- All child records must be maintained for up to 3 years after they leave your care
- Emergency Cards
Daily Sign and Out Sheets:
- Ensure that daily sign-in and sign-out sheets are placed in an accessible location at the entrance of your facility.
- Require each parent or guardian to sign their child in and out every day with their full name and the exact time.
- Use a printed or digital format for easy tracking and storage. Ensure that these records are filed systematically by date.
- Cross-check the sheets daily to confirm that every child is accounted for during operating hours.
- Store these sheets securely for at least 3 years after the child leaves your care, as required by regulations.
Daily Attendance: Track daily attendance to ensure proper supervision:
- Use a dedicated attendance log to track the presence of each child throughout the day. This can be in paper format or a digital attendance system.
- Record attendance at specific intervals, such as the start of the day, after lunch, and before dismissal, to ensure proper supervision during transitions.
- Assign staff members to take attendance consistently and verify it during routine headcounts, especially before and after outdoor play, field trips, or emergency drills.
- Review attendance sheets daily to identify any discrepancies or patterns of absences.
- Keep attendance records for 3 years as part of compliance with licensing requirements.
