Childcare Challenges: Managing the Finances is far from Child’s Play

By Alexandra Cain

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It’s been a wild ride for the childcare sector, which has operated under special rules since the start of the pandemic. It has been especially tough for centre operators in Victoria who are now trying to navigate a new lockdown. Chief financial officers (CFOs) from childcare businesses say a new federal government support package will provide welcome relief for businesses in this state.

First, a recap of the support the childcare sector received at the start of the pandemic to prevent an exodus of parents at home in lockdown withdrawing their kids and decimating the sector.

Under the federal government’s business continuity payment (BCP) program, childcare was free from 6 April until June 28. In exchange, it made payments to childcare service providers based on the number of kids in the centre’s care equal to 50 per cent of the hourly rate cap for all fees a centre charged from 17 February to 2 March. At the same time, the Child Care Subsidy (CCS) and Additional Child Care Subsidy (ACCS) on which centres rely was put on hold. This has now been reinstated in every state and territory bar Victoria, where a new package is in place to support Victorian childcare centres to maintain up to 85 per cent of their revenue.

Gabriel Goh is the CFO of Gloryland Education, which has an established centre in Doncaster in Victoria and a new one under construction at Mitcham, also in Victoria. He explains how the new government incentive will help his business, which he operates in tandem with his wife Audrey.

“We will continue receiving childcare subsidies for families who are not using our service as we now have the provision to waive gap fees, which was something that couldn’t be done before. This supports families as well as our staff and means we can continue to employ them and focus on providing high quality services to families. I’m currently working out how to manage our workforce, including whether to reduce operating hours as a result of the lower demand due to the new stage four restrictions.”

Early pandemic implications

This latest lockdown is Groundhog Day for Gloryland. Goh says the government’s initial childcare relief package including the BCP and JobKeeper lowered total income, but the business didn’t have to make any drastic changes to its workforce.

“We didn’t have to ask our employees to cut their hours, even though many other childcare centres did. Unlike many other centres, we were also able to keep all our casuals on the books and we were able to pay staff members who didn’t qualify for JobKeeper payments and still stay afloat. We were well over-staffed, but we positioned our team to work on a range of administrative tasks and plan improvements which we don’t get enough time for during normal operations.”

Gavan Flower is the Chief Financial Officer of Sprint Capital Partners, which owns the Genius Childcare Group, the proprietor of 19 childcare centres undergoing a turnaround process in Melbourne, Brisbane and Perth. Flower acknowledges it has been challenging during the pandemic to put capital to work across these businesses, as well as operate and market them.

“The pandemic has meant a lot of uncertainties dealing with potential outbreaks and the finances behind that. Navigating through shutting down centres and dealing with staffing has been really difficult. But we’re not going to let what’s happening now hold us back because we’ve been working really hard to build the business up to where it is now for a number of years.”

Gavan Flower | CFO Sprint Capital Partners / Genius Childcare Group

Flower says the initial government support his centres received at the start of the pandemic didn’t compensate for the income they lost as a result of families not having to pay fees to keep their kids enrolled.

“The funding wasn’t sufficient to cover a growing business. We opened a new centre in Clyde in Victoria and didn’t receive any government support for that. But we’ve got demand. We’re actively marketing the centre, we’re taking parents on tours and we’ve got parents enrolling their kids. But we’re not getting paid for them. From a financial perspective, the question is the magnitude of the loss you’re prepared to accept in this uncertain period.”

Victoria aside, the federal government is now giving established centres an incentive equivalent to 25 per cent of the fee for each child, which is helping to make up for the losses experienced during the lockdown. Parents are also now required to pay full fees.

“This means we can build up our businesses again. But our second largest centre is in Collins Street in Melbourne, which is now potentially having to shut down for the six week lockdown. Plus we have four other centres in Victoria. So the shutdown in this state will also have an impact.”

An added complexity is the fact childcare centres are no longer receiving the JobKeeper payment for staff. Which may force Flower’s hand when it comes to managing rosters in Victoria. “We’re going to have to make hard decisions. Working through that is going to be a challenge.”

An uncertain future

While Victoria is a huge test for childcare operators, it’s a different story in other parts of the country. Flower says his Queensland centres are getting back on track.

“Our largest centre at the Chermside shopping centre is starting to fill up. Things are turning around but it’s still going to be a choppy road. We are a business that relies on low unemployment. If people are out of work there’s less demand for childcare. Although many parents are still likely to send their children to our centres, which have curricula that prepare the children for preschool and school.”

Aside from rent, he says labour management is the biggest challenge from a cost perspective. “We want to keep on good staff, because they’re hard to find. We’re using data and technology to get us through. Being remote isn’t ideal. We use Zoom for daily check ins so we’re hands on with centre managers and make sure they understand the importance of managing their labour and lead management.”

Flower says the new Victorian support package will help, but it won’t reverse the damage the new lockdowns will do to his previous growth trajectory.

“The effect will vary from centre to centre. Our focus now will be to balance our Victorian centres’ finances against our operations in other states and continue to support our fantastic staff and families. Uncertainty remains our biggest challenge.”

Long-term, Goh says the challenge for his centres is getting the balance right between fees and government support. “We are an industry that relies on subsidies. But we need to get the balance right between fees and subsidies because early years education should be available for all children to give them the best possible start in life.. That’s something we need to address once we get past this period.”