Bootstrapping A Startup

Let’s face it: starting a new child care business is expensive. From licensing fees and facility costs to staffing requirements and strict safety regulations, the financial investment involved in opening a child care business, whether it’s home-based or a center, can be overwhelming.

Coming up with funding to get your business up and running may seem daunting, so much so that you may consider taking out a loan or taking on investors to help. While this option works for many child care businesses, it’s not for everyone. Some child care entrepreneurs prefer to (or have to!) start up and grow their business without any external funding or investments. This approach to starting your business is called bootstrapping – an unusual term that simply refers to starting and growing a business with little or no external funding and instead, relying solely on personal resources and revenue generated by the business itself.

Bootstrapping your child care business is hard work and comes with plenty of challenges, but it also comes with plenty of rewards. By relying on your own funds and resources to start your child care business, you allow yourself more freedom and flexibility over your venture, less debt, and greater profit. With a combination of resourcefulness, creativity, and hard work, you’ll be well on your way to owning and operating a successful child care business.

Why bother bootstrapping?

While bootstrapping comes with its challenges, it can be an empowering and fulfilling journey for many entrepreneurs. It fosters a strong sense of ownership, encourages resourcefulness, and can lead to a more sustainable and resilient business in the long term. Here are some of the benefits that come with bootstrapping:

Financial Independence: By avoiding external funding, you are not burdened by debt, interest payments, or the pressure to provide quick returns to investors. This financial freedom enables you to focus on long-term growth and sustainable development.
Complete Ownership and Control: When you bootstrap your child care business, you retain full ownership and control over the direction and decision-making process. This allows you to make choices aligned with your vision and values without having to answer external investors.
Lean and Efficient Operations: Bootstrapping forces you to be more resourceful and creative. With limited funding, you learn to prioritize essential expenses, streamline operations, and find innovative ways to grow without excessive spending.
Focus on Your Families: Bootstrapping encourages you to concentrate on building a customer-centered business model. When your revenue directly comes from satisfied customers—the families for whom you provide care–you have a stronger incentive to provide exceptional service that meets their needs and exceed expectations.

Bootstrapping sounds great, right? For some child care business owners, it is. However, it's essential to carefully weigh the pros and cons based on your business idea, market conditions, and personal preferences before deciding on the best approach for your venture. Some of the downsides to bootstrapping include:

Risk of Burnout: As the owner-operator of your child care business, you are likely to find yourself wearing multiple hats, handling everything from management and administrative tasks to providing direct care to children. This workload can lead to burnout, potentially affecting the quality of care and your overall business performance.
Slower Growth Trajectory: Without external funding, your child care business may experience slower growth compared to competitors who secure investments. A lack of sufficient capital can impede expansion plans, hinder marketing efforts, and delay the implementation of necessary improvements.
Limited Marketing Budget: Marketing is essential for attracting new families to your child care business. Bootstrapping may limit your ability to invest in advertising, which could hinder your outreach efforts and visibility in your community.

Despite the shortcomings, many child care business owners find bootstrapping an effective, efficient way to start their business.

Sounds Good! How Do I Bootstrap My Child Care Business?

If you want to bootstrap your child care business, there are key activities you should undertake before and after you launch your business.

Before you launch your child care business, there are three ways to start bootstrapping:

Create a comprehensive business plan: Invest the time it takes to build a simple one-page business plan, that outlines your vision, target market, services offered, pricing structure, marketing strategies, and financial projections. This plan will help you set appropriate goals and give you an idea of how to go about starting your new child care business. This will help you be clear on the market and costs. You can find out how to build one here.
Have a graduated budget: Many start-up businesses assume a “full capacity budget” from day one. For example, let’s say a center has five classrooms. They could opt to open all five on day one. However, that means they are likely paying for empty or low-enrollment classrooms. Alternatively, if the same center could start with two classrooms, they could opt to just open the two while the work to fill the others. Having a budget that clearly marks the costs as you slowly move to full capacity can guide you to know the resources you really need to start your business.
Tap into free or very low-cost resources: When you start out, don’t hesitate to ask for help from friends and family. The first thing you may think of is asking for low or no interest loans, but more easily you could ask for their time or skills. For example, you could ask your cousin who is a bookkeeper to help you set up your accounts. One child care business owner offered friends pizza to help her set up the playground equipment. Also, don’t hesitate to ask them for donations of toys and books – they are likely going to be glad to get them out of their house and it will reduce your start-up costs. Finally, consider exploring bartering opportunities with other businesses or individuals. For example, a center offered a few months of free care to one parent in exchange for their professional help as a plumber.

Once you open, you can continue to grow through bootstrapping using four more strategies.

First, utilize the Iron Triangle. Developed by the national organization, the Opportunities Exchange, The Iron Triangle is a financial model consisting of three key components: full enrollment, full fee collection, and the ability to cover per-child costs with revenue. These elements are interconnected and must be equally considered when creating a child care business's budget.

Full enrollment refers to maximizing the number of children attending the child care business to ensure optimal revenue generation. It's essential to base the budget on staffed capacity rather than licensed capacity and set achievable enrollment targets, such as 85% of licensed capacity, to avoid financial losses.

Full fee collection emphasizes the importance of collecting fees from families on time and in full. Delayed or incomplete payments hinder revenue generation, so clear expectations should be set for families, and child care software with online payment options can streamline the process.

The third aspect is whether the business's revenue can cover the per-child cost. It involves determining the cost per child and comparing it with the fees charged to families. The fees must either equal or exceed the per-child cost to avoid financial shortfalls.

While the Iron Triangle is vital for financial success at any stage of child care business development, it can be crucial in bootstrapping a start-up since it will help you to maximize the revenue you have coming into your business and allow you to promptly address any gaps in your budget.

Second, utilize low or no cost marketing to bring your business to full enrollment. Marketing a child care business on a low or no budget requires creativity, resourcefulness, and a focus on engaging with your local community. Here are some cost-effective marketing strategies for promoting your business:

Word-of-Mouth Referrals: Encourage satisfied families and your staff to spread the word to their friends, family, and neighbors. Word-of-mouth referrals can be highly effective in attracting new families. If you offer financial incentives, consider a discount on care (which will cost you less than cash) or cash contingent on a 90- or 100-day enrollment, that way you have time to bring in revenue from the new family to cover the cost.
Partnerships with Local Businesses: Collaborate with local businesses, such as pediatricians' offices, beauty salons, schools, and community centers, to share information about your child care business. Offer to display brochures or flyers in their establishments or to give their employees discounts or preference on waitlists to attract more families.
Social Media Presence: Create and maintain a strong presence on social media platforms like Facebook, Instagram, and Twitter. Share photos, videos, and updates about activities, facilities, and staff. Engage with families and the community by responding to comments and messages promptly.
Community Events and Fairs: Participate in local community events and fairs to raise awareness about your child care business. Set up a booth with engaging activities for children and informative materials for families. For example, one center printed flyers and went to area garage sales to share them with shopping families.
Host Open Houses: Organize regular open houses where prospective families can tour the facility, meet the staff, and ask questions. You can even use Facebook live and other streaming options to do virtual open houses and tours.
Testimonials and Reviews: Request positive reviews and testimonials from satisfied families and feature them on your website or social media. Positive feedback from current and past families can build trust and credibility within your community.
Local Media Coverage: Write and submit press releases to local newspapers or community newsletters about significant events or achievements at your child care business.

Third, you can use just-in-time hiring and ordering. Just-in-time hiring and ordering are business strategies commonly used by small businesses to optimize their operations and reduce costs. These strategies aim to streamline processes and resources to meet demand efficiently without unnecessary excess.

Just-in-time hiring refers to the practice of hiring employees only when they are needed to meet immediate business demands. Instead of hiring a large workforce in advance, small businesses using this approach will hire employees as demand for their products or services increases. As mentioned in your pre-launch strategies, you can create a budget to help guide you to when to hire new employees. Always having a waitlist can be a big help since it can provide families committed to using your services before you hire and expand capacity.

Just-in-time ordering involves purchasing inventory or materials only when they are needed for production or immediate sales. Child care businesses using this approach aim to minimize inventory holding costs and reduce the risk of inventory being lost to spoilage or age.

Both these strategies can help you maximize your cash on hand. However, they also require careful planning, accurate forecasting, and strong communication with suppliers and employees to ensure successful implementation.

Forth, watch your cashflow. Put simply, cashflow is the movement of money into your business (though revenue) and out of it (through expenses). Monitoring cash flow is always important since it helps you ensure you have enough cash on hand to pay bills, employees, and suppliers, while also allowing for growth and investment. It is even more important for bootstrappers since you are trying to keep your operation as lean as possible as you startup. Accordingly, you will want to focus on bringing revenue in as quickly as possible and paying bills as slowly as you can to ensure you have the cash you need. You can learn more about cashflow in this tool.

Where can I get help?

When working on bootstrapping a startup, there are several places you can turn to for help and support. Whenever possible, tap into your personal and professional networks, seeking advice and guidance from experienced entrepreneurs, mentors, or industry experts you know. Online communities and forums dedicated to startups and bootstrapping also provide valuable insights and a platform for networking with like-minded individuals. Local business organizations, start-up incubators, and accelerators often offer resources, mentorship programs, and workshops tailored to bootstrapped start-ups. Additionally, there are numerous online resources, including blogs, podcasts, and educational platforms that offer valuable guidance and practical tips for bootstrappers. By leveraging these support networks and resources, you can gain knowledge, receive feedback, and find encouragement as you navigate the challenges of bootstrapping your startup. You can find other free or low-cost resources for here.

Remember that bootstrapping a child care business requires perseverance and resourcefulness. It may take time to achieve significant growth, but a commitment to providing quality care and careful financial management can lead to long-term success.

Need Help?

Visit https://www.childcare.texas.gov/ for related resources, live webinar sessions, and free one-on-one business coaching.

Additional Resources:

Contracts

Managing Enrollment

Employee Handbook

Child Care Management Systems

Record-Keeping Systems

Liability Insurance

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