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
• 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
Facilities are Key to Program Operations
Planning is a Balancing Act
• Programming
• Finances
• Management
• Board
• Facilities
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
Assess Agency Readiness
Consider and evaluate
internal and external factors
• Internal = Agency structures and
organization; program
• External = Demand (market) for
services and facilities
Assess Agency Readiness
Evaluate 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?
Assess Agency Readiness
Evaluate 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?
Assess Agency Readiness
Evaluate 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?
Assess Agency Readiness
Evaluate External Factors
Demand for Services
• Has demand for your child care
services changed?
– Local / National economy
– Community changes
Assess Agency Readiness
Evaluate 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?
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.
Case Study:
ABC Agency
Here is ABC’s current site plan
Gravel yard
Half height
wall
Classroom
Classroom
s
Stor.
Existing
Medical
Offices
Parent
area
Reception
office
KITCHEN
Vestibule
REF
REF
Director
REF
D/W
Parking
Keys to a Successful
Child Care Facilities Project
• Assess Agency Readiness and
Determine Goals
• Evaluate Financial Capacity
Evaluate Financial Capacity
Look at these two components:
• Financial Strength
– General financial condition
– Cash management
– Sources of revenue
• Financial Systems
Evaluate Financial Capacity
Financial Strength
General financial condition
• Are you operating at a surplus?
• Do your government and parent
payments cover your expenses?
• How much must you fundraise?
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?
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.”
Evaluate Financial Capacity
Financial 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?
Evaluate Financial Capacity
Financial 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
Keys to a Successful
Child Care Facilities Project
• Assess Agency Readiness and
Determine Goals
• Evaluate Financial Capacity
• Plan Your Child Care Space
Case Study: ABC Agency
Planning 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.
Case Study: ABC Agency
Planning for Expansion
Things to consider when deciding
between Leasing and Buying:
Lease
Buy
 No upfront costs  Significant upfront costs
(like down payment)
 Flexibility for
future
 Long term solution
 Less responsible
for maintenance
 More control over
property management
 Adds to Landlord
assets
 Adds to Agency Assets
 Renovation costs
 Renovation Costs
ABC decides to pursue
purchase!
Case Study: ABC Agency
Planning Child Care Space
Calculate
your
space needs:
CHILDCARE SPACE
PLANNING
ABC Agency
CLASSROOMS
Infant
Toddler
Pre School
Half Day HS
TOTALS
# of
Children
Suggested
sqft.
Min. sqft.
per child* needed
8
8
20
34
70
90
90
40
40
720
720
800
800
# of
# sqft per
ADMINISTRATION
Employees employee
Site Director
1
150
Family Workers
1
80
Reception Area/Admin Area
1
150
Conference Room/Parent Room
1
350
Total
sqft.
150
80
150
350
MISCELLANEOUS
Gross Motor Rm.
Kitchen/Pantry
Toilet Rooms
Maintenance/Laundry
Circulation(30%)
# of Rooms
1
1
2
1
Total Sqft
Sqft.per Rm Needed
900
900
400
400
75
150
150
150
1,611
TOTAL
available space
6,981
5,800
This is greater than the number of square feet required for licensing .
Case Study: ABC Agency
Planning Child Care Space
Here is ABC’s new site plan:
Infant/Toddler
Playground
OFFICE
SUITE
D/W
3-5 Year -Old
Playground
D/W
Toddlers
Toddler Classroom
3-5 Year
Olds
3-5 Year Old Classroom
Laundry
Reception
Infant Classroom
Infants
D/W
D/W
3-5 Year
Olds
REF
REF
D/W
KITCHEN
Kitchen
D/W
Washroom
Conf.
Room/Parents
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
Estimate Program Expansion Budget
Financial 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?
Case Study: ABC Agency
Expansion Budget
Start by looking at your
current Operating Budget
Revenues
Government Contracts
and Service Fees
Fundraising
Total Revenues
Expenses
Personnel & Benefits
Educational
Contractual
Occupancy
Total Expenses
Revenues Minus Expenses
408,000
20,000
428,000
280,800
20,220
60,500
33,475
394,995
33,005
Case Study: ABC Agency
Expansion Budget
Calculate your projected revenue
using your new number of clients and
contract/certificate rates:
ABC - Projected Operating Budget
PROGRAM/REVENUE
Infant/Toddler
Pre-school
Half Day Head Start
Fundraising
Total Slots
Total Revenue
Child Care
16
20
34
133,999
101,680
Head Start
112,304
120,000
204,000
246,303 @ 3
221,680 @ 2
204,000 @ $
65,000 app
70
736,983
Case Study: ABC Agency
Expansion Budget
Calculate your projected expenses
using your new number of staff and
new size of facility:
ABC - Projected Expenses with Expansion
EXPENSES
Personnel
# of Staff Avg. Salary
Teaching Staff
13.00
25,000
Administrative Staff
6.00
Personnel Subtotal
Benefits
20%
Total Personnel Expenses
313,000
141,000
454,000
90,800
544,800
Educational
Field Trips, Supplies, Prof. Dev.
34,800
Contractual
Transport, Nurse, Audit, Accounting
51,500
Occupancy Expenses
Utilities
Maintenance
Taxes/Insurance
Total Occupancy Expenses
TOTAL EXPENSES (before debt service)
10,094.00
9,968.89
2,900.00
22,963
654,063
Case Study: ABC Agency
Expansion Budget
Compare your revenues and
expenses to project what your new
budget would look like. Do you have
a surplus?
Current Operations
Revenues
New Operations
Revenues
408,000
671,983
20,000
428,000
65,000
736,983
280,800
20,220
60,500
33,475
394,995
544,800
34,800
51,500
22,963
654,063
33,005
82,920
Revenues
Government Contracts
and Service Fees
Fundraising
Total Revenues
Expenses
Personnel & Benefits
Educational
Contractual
Occupancy
Total Expenses
Revenues Minus Expenses
Estimate Program Expansion Budget
Start 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!
Total Cash Revenue
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
41,775
41,775
41,775
55,832
60,019
61,415
Total Cash Expenses
52,030
56,530
56,530
60,264
60,264
60,264
Cash Surplus/(Deficit)
(10,255)
(14,755)
(14,755)
(4,432)
(245)
1,151
Cumulative Cash Surplus/(Deficit)
(10,255)
(25,010)
(39,765)
(44,197)
(44,442)
(43,291)
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
Determine the Real Costs
Facility 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
Case Study: ABC Agency
Development Budget
Acquisition
235,000
Construction ( Hard Costs)
296,400
Architecture/Engineering Fees
66,956
Specialties and Fees
34,914
Developer/Project Management
14,636
Furnishings and Equipment
30,000
Contingency
66,436
Construction Interest
27,914
TOTAL DEVELOPMENT COSTS
772,257
Determine the Real Costs
Organizational 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
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
Explore Financing Options
Capital 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
Explore Financing Options
Capital 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
Explore Financing Options
Capital 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
Explore Financing Options
Capital Funding Sources
How can we pay for the project?
• Borrow the funds
– Local Bank
– CDFI
BUT...
Explore Financing Options
Common Questions
About 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?”
Case Study: ABC Agency
What Can They Borrow?
• 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
5%
7%
9%
5
305,120
290,790
277,382
10
542,872
495,916
454,546
15
728,129
640,612
567,701
Explore Financing Options
Loan Evaluation Factors
• Loan to Value Ratio
• Security and Collateral
• Equity
Explore Financing Options
What 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
Case Study: ABC Agency
Putting It All Together:
A Financing Plan
We know that:
Project Costs are:
$772,257
ABC can afford to
borrow up to:
$640,612 @ 7%
interest over 15
years
BUT…
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 gap of $446,007
How can ABC afford this project?
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
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…
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 in loan payments each month.
Let’s take a closer look at how a
CDFI loan at 5% can make the
numbers work:
Monthly Interest
payment rate
2,826
Term
5%
15
Loan
amount
357,363
ABC is almost there.
The gap is down to $11,418
Case Study: ABC Agency
Filling the Gap
Let’s see how the financial
package looks now.
ABC Agency - Expansion
Sources and Uses Statement
Target Start Date: January 2003
5,800 square feet acquistion and rehab
Sources
Agency Contribution (10% of tdc)
Donation for Furniture
IFF Loan
Bank Loan
Total Sources
77,226
11,418
357,363
326,250
772,257
Uses
Acquisition
Construction Costs
Architecture & Engineering
Soft Costs
Project Management Fees
Furniture and Equipment
Construction Interest
Total Uses
235,000
296,400
66,956
34,914
14,636
30,000
27,914
772,257
Lunch Break
“We’ve done a lot of important playing here today.”
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
Manage the
Development Process
“That’s my little brother.
He’s all messed up on skittles and Mountain Dew.”
Manage the
Development Process
• Predevelopment
• Closing Your Financing
• Construction
Manage the Development Process
Predevelopment
Site Selection and Acquisition
•
Site Parameters
•
Property Condition
•
Appraisal
•
Zoning / Code Issues
•
Environmental Condition
•
Legal Issues
•
Operating Costs
Manage the Development Process
Predevelopment
Development Team Selection
Key players:
1. Project Manager
2. Architect
3. General Contractor
Manage the Development Process
Predevelopment
Development Team Selection:
Project Manager
• Skilled in all phases of the
development process
• Guides the agency through each
step of the process
• Negotiates prices and coordinates
the activities of all professions
involved
Manage the Development Process
Predevelopment
Development Team Selection:
Architect
• Should have experience with similar
projects (scope and specialty)
• Should have experience with nonprofit organizations
• Should have offices near project and
have sufficient staff to handle project
Manage the Development Process
Predevelopment
Development Team Selection:
General Contractor
• On site management of entire
construction process
• Performs actual work or hires
subcontractors
Manage the Development Process
Predevelopment
Design/Cost Estimating
1. Schematic Design
2. Design Development
3. Contract (Construction)
Documents
4. Cost Estimation
5. Value Engineering
Manage the Development Process
Predevelopment
Hire Your General Contractor
• Types of Contracts
– Guaranteed maximum price
– Lump sum
– Design/Build
• Bid Process
Manage the Development Process
Closing Your Financing
•
Refine Budgets
•
Secure Financing Commitments
– Meet with Lenders / Funders
– Apply for Gov’t capital resources
– Kick off Capital Campaign
Manage the Development Process
Closing Your Financing
• The Paper Chase
– Corporate Documents
– Government Approvals and
Contracts
– Surveys, Flood certificates, and Title
Insurance
• Typical Documents
– Loan Documents
– Escrow Agreements
– Sworn Statements
Manage the Development Process
Construction
• The Process
– Permit
– Construction meetings
– Payouts
• lien waivers
• retainage
– Change orders
– Substantial completion / occupancy
– Punchlist
Manage the Development Process
Construction
• Licensing
– Business license
– DCFS license
• Closeout
– Warranties
– As-built drawings
– Training
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
Lessons Learned
• Plan, plan, re-plan, and plan
some more!
• Continuously adjust and revise
numbers
• The tendency to low ball
• Contingency plans and money
Don’t do it alone!